“There is a strong potential for higher growth based on cheap valuation, loosening liquidity in China and more government policies to aid selected sectors,” said Peter So, managing director and co-head of research at CCB International.
Last week’s cut in Chinese banks’ required reserve ratio was just the start, he told Equities. He expects another decrease in January and a cut in Chinese interest rates around March. Favored sectors such as new energy and new materials should get a government boost in the second quarter of 2012, he said.
Banks, insurance companies and brokerages will gain from increased liquidity. Among insurance companies, So likes Ping An (PNGAY) and PICC (PPCCY) because of their good growth potential. Oversold properties will also rally, he said, led by companies with large diversified land banks such as China Overseas Land (CAOVY) and Country Garden (CTRYY).
For now, the market is digesting last Thursday’s enormous gain and waiting for news Friday about European policies for dealing with its debt crisis and for release of Chinese inflation figures.
Hong Kong’s Hang Seng Index shrank 0.7% Thursday to 19,108 in very weak turnover. The index of Chinese companies sank 0.9% to 10,395.
After the EU summit and release of Chinese economic figures late this week, So said, next week will be more quiet and probably move sideways. But soon, possibly early next year, the prospect of loosening Chinese credit will fuel an upturn. END
Hong Kong Blue Chips: -132, -0.7%, to 19,108, 12-8-11, Hang Seng Index
Chinese Stocks in Hong Kong: -90, -0.9% to 10,395, 12-8-11, HSCE Index
Shanghai Stocks: -0.1%, 2,329, 12-8-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -0.6, to 380.1, 12-7-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong stocks slid lower as optimism cooled about a solution to Europe's debt crisis at the upcoming EU summit meeting. Very thin turnover reflected a lack of momentum. Shipping counters were mixed: China COSCO (CICOY) +5.4%. KGI Research
Quotable: "China CPI to decline to 4.5% YoY in November with food price growth moderating." CCB International. 12-6-11
Chinese Company to Watch: "Johnson Electric (JELCY) manufactures micromotor products used in consumer and business applications. After retreating by 14% since the top in late October, trend has strengthened recently." Guoca Capital. 12-8-11
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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
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