Fear of a disastrous default by Greece drove Hong Kong and other global markets into the tank early this month. Now investors are optimistic European countries will agree to a concrete solution to their debt problems by the end of the month. The Chinese government investment arm announced it would buy shares in big banks and Mainland exchanges, boosting China financial plays. And after being closed a week for a holiday, China stocks markets posted a nice rally.
As a result, Hong Kong’s Hang Seng Index surged this week, rising 2.3% Thursday to 18,758. That is a gain of 15.4% since October 4. In the same period the index of Chinese companies jumped 21% to 9,803.
One feature of the increased buying appetite for risk assets is investors are forsaking defensive utility stocks for Chinese financials and building materials companies, according to Jackson Wong, vice president of sales for Tanrich Securities.
“China financials are still attractive and properties stocks might provide some short term trading opportunities because of their lagging nature at this point,” Wong told Equities in an email.
He sees short-term resistance at 19,000, a heavily guarded support level before recent big declines. Support is at 17,600, a 50% retracement of the current rebound.
Today investors will see if Chinese inflation continues to fall, after dropping from 6.5% in July to 6.2% in August. As we saw Monday, CCB International expects the CPI to fall to 6.0%. That’s encouraging but probably not enough to give investors confidence China will soon loosen its tight money policy. End
DAILY FIX -- Hong Kong Rally Ross on
Hong Kong Blue Chips: +428, +2.3%, to 18,758, 10-13-11, Hang Seng Index
Chinese Stocks in Hong Kong: +347, +3.7% to 9,803, 10-13-11, HSCE Index
Shanghai Stocks: +0.8%, 2,439, 10-13-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +8.8, to 371.8, 10-12-11, Bank of New York Mellon, ADR Index-China
Insight: Optimism over a solution to the European debt crisis and stabilized A shares on the Mainland fueled another round of sharp increases in strong turnover in Hong Kong. The World Steel Association increased its forecast for steel use in 2011 and 2012, and Maanshan Steel (144A, 323 in Hong Kong) surged 25.5%. KGI Research
Quotable: "Without further bad news from Europe, investors may pay attention to the profit status of the listed companies and accumulate low-valued companies with good profit-generating power." BOCOM International. 10-13-11
Chinese Company to Watch: "Sinotrans Ship (SSLYY, 0368) "(The) recent rebound of shipping sector will provide support to its share price. Cash on hand at HK$1.7 per share which is highly defensive." KGI Asia. 10-12-11
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