Economic worries from far away and close at hand accelerated the downturn in China-related stocks this week. Deepening of the Greek debt crisis was the most recent culprit; a possible slow-down in the Chinese economy increased anxiety early in the week. Continued weak manufacturing and other statistics from the U.S. didn’t help.
Blue chips in Hong Kong barreled through the 22,000 support level on Thursday and slid below support at 21,700 on Friday. For the week the blue-chip Hang Seng Index fell 3.2%, 725 points, to 21,695. The index of Chinese companies sank 2.7%, 336 points, to 12,045. The Hang Seng has plummeted 1,255 points, 5.5%, in the last two weeks.
Among the numerous big losers were export plays like Li & Fung, as Greek debt and declining U.S. manufacturing growth raised worries about global trade.
But some analysts in Hong Kong predict the near-free fall is almost over. The downside for the Hang Seng Index may be limited to about 21,500, according to Benny Wong, head of research at BOCOM International.
“Greece has a serious problem but I think EU / IMF will find a way to avoid a default in the near term,” he told Equities in an email. Concerning China’s economic slowdown, he said he thinks China will have no choice but to relax interest rate hikes and other austerity measures in the second half of 2011.
“I am not saying the world is fine but the market seems to have over-reacted, (and) a meaningful rebound is expected sometime in 2H, my target is 25,000,” Wong said.
Long term, he said, the big risks are emergence of an unexpected crisis or rising interest rates and a double-dip recession in the U.S. in 2012 or 2013. End
Hong Kong Blue Chips: -258, -1.2%, to 21,695953, 06-17-11, Hang Seng Index
Chinese Stocks in Hong Kong: -116 -1.0% to 12,045, 06-17-11, HSCE Index
Shanghai Stocks: -1.5%, 2,664, 06-17-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -2.6 to 411.9, 06-16-11, Bank of New York Mellon, ADR Index-China
Insight: Mounting worries about the Greek debt crisis drove blue chips under the 21,700 support level in moderate turnover. The debt worries and sagging U.S. manufacturing continued to batter export plays. Esprit (0330) plunged 4.1%. Solar energy firms, heavily sold in recent weeks, rebounded. KGI Research
Quotable: “21800pt, which is equivalent to 11.54x PE, is a strong technical support for HIS. Fundamentally speaking, further downside is limited, but there may be chances of breaking through 21800pt temporarily if more bad news surfaced.” BOCOM International. 6-17-2011
Chinese Companies to Watch: “We remain optimistic towards future coal price movement and profit outlook of listed coal enterprises. Maintain “Outperform” rating for the sector and recommend “Buy” for Yanzhou Coal, Hidili Industry and Winsway.” BOCOM International. 6-17-2011
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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