On Tuesday the Hang Seng Index in Hong Kong stood up relatively well in early trading to worries Italian election results might exacerbate the region’s debt woes, but concerns over possible tightening of the Chinese property market helped push the index lower. It ended with a loss of 1.3% at 22,524, erasing the last of the gains from a strong January. The index of Chinese companies dropped 2.0% to 11,104.
But China stocks can play a trump card not available to other markets, said Steven Leung, director of institutional sales at UOB Kay Hian. “It’s possible that because of China’s economic growth the Hong Kong situation stands out among other global markets,” he told Equities.
“The effect of Italy is not that bad,” he said. “It’s only one factor affecting Hong Kong and China. What’s more important are the sequester in the U.S. and new policies from China’s National People’s Congress starting this weekend.”
Leung expects bargain-hunting to emerge at the 22,300-to-22,400 level and fuel a modest rebound. But he notes that investors are still cautious and sees significant resistance at 23,000 unless the U.S. avoids damaging spending cuts from the sequester and the National People’s Congress comes up with major policies to stimulate and reform the Chinese economy.
Leung favors big Chinese banks ICBC (IDCBY) and CCB (CICHY) because of the attractive macro-economic outlook in China. And he said the giant banks feature undemanding valuation and good dividend yields. He also likes companies that will benefit from Chinese policies to promote urbanization and a cleaner environment, including shale gas producers and properties. End
Hong Kong Blue Chips: -300, -1.3%, to 22,520, 2-26-13, Hang Seng Index
Chinese Stocks in Hong Kong: -230, -2.0%, to 11,104, 2-26-13, HSCE Index
Shanghai Stocks: -32, -1.4%, to 2,293, 2-26-13, Shanghai Composite Index.
Chinese Stocks in the U.S.: -5.0, 376.4, 2-25-13, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips opened 180 points lower on worries about political gridlock in debt-plagued Italy and fell further in modest turnover. KGI Research
Quotable: "We are bullish about the stock market in the medium term and recommend investors to overweight Chinese banks and property developers which are likely to deliver satisfactory earnings results in March." Guoco Capital. 2-26-13
Chinese Company to Watch: China Aoyuan Property Group (3883,HK) "Considering the Company's clear development strategy and good sales prospects, we assume Aoyuan with a buy rating and 12-month target price of HK$1.98, equivalent to 5.8x 2013E P/E." Phillip Securities. 2-26-13
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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
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