China stocks continued to swoon Thursday as it became clear the U.S. central bank would not ride to the rescue any time soon with another round of monetary easing.
Worries over weakening Chinese economic growth have already pushed the Hong Kong market lower. More bad news is expected Friday with the release of Chinese economic numbers including second quarter GDP. Then Wednesday in the U.S. the Federal Reserve Board signaled it was not close to kicking off its third round of loosening.
Hong Kong’s Hang Seng Index tumbled 2.0% Thursday to 19,025, and the index of Chinese companies sank 2.2% to 9,167. Although still light, turnover increased to reflect stronger selling pressure.
Investors fear that China’s weak economic data in the last two months indicates another drop in GDP will be announced Friday, according to Ben Kwong, Chief operating officer at KGI Asia. He told Equities in an email that he expects growth to fall to 7.8% from 8.1% in the first quarter.
A more significant drop could unleash more heavy selling, but Kwong sees a few positive signs. One is the higher-than-expected Chinese trade surplus in June, and another is a recent statement by Chinese Premier Wen Jiabao that more stimulus measures are on the way.
Kwong thinks there is a chance for a rally or at least stabilization of the stock market. “We believe that some of the negatives, if any, have already been reflected in the recent retreat of HK stock market,” he said.
With more economic stimulus coming, Kwong likes construction companies such as China Communications Construction (CCCGY) and building materials firms like Anhui Conch (AHCHY). End
Hong Kong Blue Chips: -395, -2.0%, to 19,025, 07-12-12, Hang Seng Index
Chinese Stocks in Hong Kong: -206, -2.2%, to 9,167, 07-12-12, HSCE Index
Shanghai Stocks: +10, +0.5% to 2,185, 07-12-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +4.4, 362.4, 07-11-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong joined other Asian markets in a steep decline after the U.S. Federal Reserve Board indicated it would not soon launch another round of monetary easing. More bad news is expected Friday with the release of China’s second quarter GDP number. Chinese banks fell after S&P said losses from bad property loans were growing: ICBC (FXI) -2.4%. KGI Research
Quotable: “The first resistance (for the Hang Seng Index) would be 250DMA (19,806), while next resistance would be seen at 20,000. For support, the first support would be 20DMA (19,326), while next support would be seen at 19,000.” KGI Asia. 7-12-12
Chinese Company to Watch: “Without the launch of any new auto consumption or purchase restriction policies, we maintain “Market Perform” rating on the sector and 3% sales growth for 2012. We recommend Great Wall Motor (GWLLY), Geely (GELYY) and Brilliance China (BCAUY).” BOCOM International. 7-12-12
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For a list of Chinese companies sold in the U.S. and information on each company go to http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN