The story that China stocks will rally as soon as inflation begins to ease is still intact. But thoughts on how to play the market in the meantime have turned more to “run for the hills.”
For weeks blue chips in the gateway market of Hong Kong have swung day-to-day on global and Chinese economic news but have almost unfailingly ended the week at about the 23,000 level. With the prospect of a rebound in coming months, selectively buying big banks or other Chinese stocks when they dipped temporarily could be a reasonable strategy.
However, a recent turn for the worse in the economy increases chances that dips won’t be so temporary.
“The market condition has turned more negative in the recent week, as major economic data in China and US showed signs of slow down,” Ben Kwong, chief operating officer at KGI Asia, told Equities.
In addition to news about a struggling U.S. recovery and worsening European debt crisis, Chinese inflation news is still bad, and there’s much uncertainty over the end of the U.S. Fed’s easy money policy, known as QE2, in June.
“It seems the 22,500 (will) really have some real challenges ahead in coming days,” Kwong said. “In the near term, (the) China banking sector and heavy construction sector (are) hard
hit due to concern of bad debt issue and slow down of China economy.”
Investors might return to Chinese stocks early in the third quarter when worries over the end of QE2 and over Chinese inflation ease, Kwong said. The key to the market short term is still inflation in China. End
Hong Kong Blue Chips: -81, -0.4%, to 22,869, 06-07-11, Hang Seng Index
Chinese Stocks in Hong Kong: -29, -0.2% to 12,721, 06-07-11, HSCE Index
Shanghai Stocks: +0.6%, 2,744, 06-07-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -7.9 to 424.7, 06-06-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue-chip stocks opened down 187 but the loss narrowed in the afternoon in weak turnover. KGI Research
Quotable: “Looking forward into next week, most attention in the market will continue focusing on the euro-zone debt crisis and the impact of bad debts on Chinese banks. Investors will also be cautious ahead of China inflation data (to be released on 14th June 2011). We see the market sentiment to remain in a weak tone but strong support should be seen at 22,500 level.” BEA Securities. 6-3-2011
Chinese Company to Watch: “Oil producer CNOOC (883). Expansion in overseas markets helps solving the bottle-neck of output. Share price broke major resistance and may rebound to peak in April.” Core Pacific Yamaichi. 6-2-2011.
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