China stocks ended a wild week little changed after swinging up and down according to breaking news on the European debt drama. But behind the volatility, China’s gradual move to loosen tight credit controls gave stocks a small but significant push forward.
On Friday, fears faded that a Greek referendum would scuttle Europe’s plan to deal with its debt problem, and the European Central Bank announced a surprise rate cut. The result was a 3.1% surge in Hong Kong’s Hang Seng Index to 19,843. The Index ended the week with a slight 0.9% loss. The index of Chinese companies rose 0.8% to 10,705.
News from China has buoyed the market recently. Chinese authorities announced last week they would begin “fine tuning” to ease inflation-fighting tight credit policies. Then this week China’s “big four” banks eased lending requirements.
A-share stocks on Chinese markets rose as a result, according to Ben Kwong, chief operating officer at KGI Asia. This triggered a strong rebound in insurance companies, he told Equities in an email. The banking sector and fixed asset investment plays also moved up on the news of loan easing.
“We believe that the relaxation of bank loan would favor those fixed asset investment plays like cement, construction equipment,” Kwong said. “Although several of them already accumulated sizable gain, [investors] could still buy during correction as fund flow will still favor those counters in the near term.” End
Hong Kong Blue Chips: +600, +3.1%, to 19,843, 11-04-11, Hang Seng Index
Chinese Stocks in Hong Kong: +411, +4.0% to 10,705, 11-04-11, HSCE Index
Shanghai Stocks: +0.8%, 2,528 11-04-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +2.0, to 392.9, 11-3-11, Bank of New York Mellon, ADR Index-China
Insight: News of a European interest rate cut and the decision by Greek leaders not to put the Europe debt solution plan to a vote triggered a sharp rise in the Hong Kong market. Chinese insurance companies surged: China Life (LFC) rose 7.3%. Speculation China would allow oil refiners to set their own prices boosted Petrochina (PTR) 8.3% higher. KGI Research
Quotable: “Its (the Hang Seng Index) initial resistance is seen at 19,745 (rebound peak at Wednesday), while second resistance is at 100 Day SMA (20,276). First and second support will be seen at 50 Day SMA(18,896) and 18,500.” KGI Asia. 11-4-11
Chinese Company to Watch: Zhuzhou CSR Times Electric “Being the only train-borne electrical system manufacturer of CSR group, Zhuzhou CSR Times Electric holds a prominent position in the industry, possessing seven core technologies and excellent independent R&D capabilities, which in turn make it a leading supplier of rail transport electrical systems in China.” Haitong Securities. 11-4-11
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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