This week will lack the drama of last week, when major Chinese economic statistics were released. The question is can stocks in Hong Kong could extend Friday’s rally, and the resounding answer on Monday was, “No.”
Blue chips and the index of Chinese companies both tumbled about 1.5% as the apparent slowdown in China’s economy helped drive down infrastructure materials and equipment makers.
As for scheduled events, “This week will be pretty quiet,” Eric Yuen, head of research at Guoco Capital, told Equities. He noted that not only had China announced April economic figures, but Chinese corporations had released first quarter results. The main activity planned for the week is the IPO of Swiss-based commodities marketer and producer Glencore International PLC. BEA Securities expects the listing to soak up liquidity, further depressing sagging Hong Kong turnover.
Last week’s eagerly awaited economic statistics were a mixed bag – with stubbornly high inflation but evidence of slowing economic growth. But some analysts such as CCB International’s Peter So said the lesson to take away was that China would not feel a need to raise interest rates soon. And the rise in China’s reserve requirements late in the week further reduced the need for a near-term rate increase to fight inflation.
With uncertainty over interest rates removed, according to Core Pacific Yamaichi, Hong Kong and Chinese markets rallied last Friday. That means stocks entered this week with positive momentum.
However, the threat of a Chinese rise in interest rates has been postponed, not eliminated. Likelihood of an eventual interest rate increase will continue to weigh on stocks. And now investors have to take into account a slowdown in the Chinese economy. End
Hong Kong Blue Chips: -316, -1.4%, to 22,961, 05-16-11, Heng Seng Index
Chinese Stocks in Hong Kong: -217, -1.7% to 12,677, 05-16-11, HSCE Index
Chinese Stocks in the U.S.: -6.0 to 433.9, 05-13-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips fell through the 23,000 level after declines of locally listed stocks in the U.S. and following a drop on Chinese markets. Turnover, already weak in past weeks, sank further. Chinese infrastructure materials and equipment producers plunged. That included cement producers, which fell more than 3%. However consumption plays rose: Tingyi (0322) +5%. KCI Research
Quotable: "The blue-chip index is expected to consolidate around 23,000 next week, as investors may stay on the sideline to wait for policymakers on the Mainland to shed more lights on the interest rate outlook in China." BEA Securities. 5-14-2011
Chinese Franshion Properties (0817) Chinese commercial and residential property developer. "Company to Watch: Expecting 80% earnings growth this year, we set our target price on the stock at $3.08, implying a 40% discount to our assessed NAV of $5.13/share or a forward FY11 P/E of 14.9x." Haitong Securites. 5-16-2011
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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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