China Stocks Stage Weak Rebound

Gene Linn  |

Wednesday’s tepid rebound in China stocks likely presages cautious trading the rest of the week.

Hong Kong’s Hang Seng Index had plunged 4.2% on Tuesday after surging 16% in the previous two weeks. The trigger was the usual culprit these days – bad news about the European debt crisis. The Index climbed back 1.3% higher Wednesday to 18,303. The index of Chinese companies rose 1.2% after sinking 5.2% the day before.

Turnover was thin on Tuesday and fell even further on Wednesday. And 41% of Wednesday’s weak volume consisted of warrants and callable bull/bear contracts, according to KGI Research, reflecting a focus on speculation.

Tuesday’s big drop was overdone, according to Core Pacific Yamaichi head of research Castor Pang. But he noted that even with the sell-off the Hang Seng did not break below its 10-day and 20-day moving averages.

“Investors are cautious, not necessarily bearish,” he told Equities.

Caution will probably persist for awhile, he said, with formidable resistance at the 50-day moving average, which is 19,046 at this time. The Index has not crossed above its 50-DMA since June.

“I can’t see any strong movement in the near term,” Pang said.

For now, he said. Chinese banks are boosted by a rise in mortgage rates. On the flip side the increased rates weigh on Chinese property stocks. End

DAILY FIX -- Europe Uncertainty Stunts China Stock Rebound

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Hong Kong Blue Chips: +233, +1.3%, to 18,303, 10-19-11, Hang Seng Index

Chinese Stocks in Hong Kong: +109, +1.2% to 9,449, 10-19-11, HSCE Index

Shanghai Stocks: -0.2%, 2,378, 10-19-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +3.4, to 371.5, 10-18-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong rebounded on the strength of a rise by ADRs in the U.S., but gains continue to be limited by uncertainty over the debt crisis in Europe. Insurers fell. CPIC (2601.HK) tumbled 4.4% after announcing disappointing third quarter results. KGI Research

Quotable: "We do not expect an immediate easing in China’s tightening policy easing yet, given remaining inflationary pressure, but the turning point could come after the Annual Economic Workshop in late November." Haitong Securities. 10-18-11

Chinese Company to Watch: China Life (LFC) Buy "Accumulated premium for the first 9 months increased by 2.8% to RMB
264bn." BOCOM International. 10-19-11

China Water (CWAFF) "Coupled with the new water conservation technology policy outline issued by the National Development and Reform Commission a few days ago, which aim(s) to publicize the water cost and implement new pricing policies, the development outlook for the water industry is bright." CSFG. 10-17-11

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For a list of Chinese companies sold in the U.S. and information on each company go to

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