After two days of gains, the Hang Seng Index in Hong Kong dropped 1.4% to 21,388, and the index of Chinese companies fell 1.9% to 11,602. Slightly weaker turnover suggested that investors were cautious.
The Hang Seng has gained a negligible three points since roaring through the 21,000 resistance level on February 15 to 21,385.
Hints from derivatives suggest the market will now go higher, perhaps to 22,000, said Benny Wong, head of research at BOC International, the brokerage arm of China’s Bank of Communication.
But Francis Lun, assistant CEO at Lycean Securities, said the market has fallen back each time in approached 22,000 in the past two weeks.
“That shows there is a strong resistance level because we’ve gained a lot this year,” Lun told Equities. “The market is up 17% which is the second-best performance in the new year in 22 years.”
Announcement of China’s official February PMI gave little encouragement to the market, showing only a small rise to 51.0.
Both analysts agree it is difficult to pick winning stocks at this time. Lun said investors are chasing short-term gains. For example they bought banks with considerable European exposure after the European Central Bank boosted the region’s financial sector. Prime targets were HSBC (HBC) and Standard Chartered (REPR).
Wong said some stock picking seems illogical. One instance was that Nine Dragon Paper (NDGPY) announced poor results but went up more than 10% in one day. He also said BOC International thinks stocks of Chinese developers are being manipulated to prepare for share placements.
Banks seem to be strong, and utilities will gain if there is a downturn, according to Wong. Steel, aviation and food and beverages may do well because they are laggards. End
Hong Kong Blue Chips: -292, -1.4%, to 21,388, 03-01-12, Hang Seng Index
Chinese Stocks in Hong Kong: -224, -1.9%, to 11,602, 03-01-12, HSCE Index
Shanghai Stocks: -0.1% to 2,426, 03-01-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: -1,9, 416.8, 03-01-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong opened lower after the U.S. Federal Reserve Board indicated it would not pump more money into the U.S. economy. Losses expanded in the afternoon in cautious trading. Gold plays fell along with the price of gold: Zhaojin (HSCEI) -5%. Chinese property developers slumped due to concerns they would soon come to the market to raise funds: China Overseas (CAOVY) -5.5%. KGI Research
Quotable: “The decline in short-selling turnover ratio for blue-chips reflected that the market had stabilized in short term.” Core Pacific Yamaichi. 3-1-12
Chinese Companies to watch: “We favor companies like Lumena (CHLUY) and Dongyue Group (DNGYY) that are positioned to capitalize on the Ministry of Industry and Information Technology’s classification for new materials.” CCB International. 3-1-12
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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