China Stocks Soar on Good News About Inflation

Gene Linn |

Good news on China’s inflation goes a long ways. China stocks took off like a rocket Friday after Chinese Premier Wen Jiabao wrote in the Financial Times that China would have inflation under control this year and that fast economic development would continue.

For weeks China stocks had sunk relentlessly in weak turnover amid worries of Chinese inflation, European debt and sagging U.S. economic growth. Renewed optimism about a settlement of the Greek debt crisis fueled a puny, short-lived rally earlier this week.

But when Wen’s statement eased worries about China’s economic growth and about long-term economic tightening, investors rushed in to buy stocks. The index of Chinese companies on the Hong Kong market soared 3.1%, and Shanghai’s Composite Index jumped 2.2% Friday.

For the week, Friday’s rally pushed Hong Kong’s blue-chip Hang Seng Index up 2.2%, 477, points to 22,172. The index of Chinese companies gained 3.3%, 392 points, to 12,437.

Next week expiration of futures contracts and brokerages’ window dressing ahead of the end of the second quarter will tend to push stocks higher, according to Ben Kwong, chief operating officer at KGI Asia. He told Equities the next resistance level for blue chips is at the 250-day moving average of about 22,700.

Chinese banks are among the main beneficiaries of optimism about inflation. Kwong said that aviation plays would gain from efforts by the U.S. and other countries to bring down oil prices. China Southern and China Eastern could attract bargain-hunting, he said.  End

hong kong china stocksDAILY FIX

Hong Kong Blue Chips: +413, +1.9%, to 22,172, 06-24-11, Hang Seng Index

Chinese Stocks in Hong Kong: +370, +3.1% to 12,437, 06-24-11, HSCE Index

Shanghai Stocks: +2.2%, 2,746, 06-24-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +3.5 to 418.6, 06-22-11, Bank of New York Mellon, ADR Index-China

Insight: Statements by Chinese Premier Wen Jiabao in the Financial Times eased worries about China's inflation and reduced prospects of further, prolonged monetary tightening.

Quotable: "Total short-selling turnover amounted to HK$2.94bn which shared 9% of total turnover. However, blue-chips short-selling turnover was HK$2.93bn which exceeded 12% of total blue-chips turnover. It showed that under the threat of weak US economic forecast, market became more pessimistic which would affect the momentum of the market to rebound." Core Pacific Yamaichi. 6-23-2011

Chinese Company to Watch: Tiangong International (820) "The company beat 5 competitors in 2 years and ranks third among all cutting cool and die steel producers in the world. It trades at FY11F 0.07x PEG only, failing to show its position as the world’s third largest cutting cool and die steel producer. Irrational plunge in share price provides good buying opportunities. We maintain “Buy” with TP of HK$3 on bright growth prospect." BOCOM International. 6-23-2011

Brokerages and analysts cited have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don't endorse them.

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

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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