Confidence in Chinese Economy Grows

Growing confidence that the worst is over for the Chinese economy pushed China stocks up sharply on Monday.

The Hang Seng Index in Hong Kong jumped 1.7% to 21,094, and the index of Chinese companies rose 1.6% to 11,081. With markets closed in China and Japan, turnover was thin. The Hong Kong market will close for a holiday Tuesday.

China stocks have been weak since a solid rally in January and February due to stubbornly high inflation and fast-sinking economic growth. The Hang Seng poked its nose back above 21,000 on April 20 but promptly sank on profit-taking.

Monday’s charge over 21,000 might have more staying power.

That’s because many investors may agree with a brokerage that said on its website Monday that China is shifting its focus from tightening credit to fight inflation to easing credit to support economic growth.

Signs of the shift include support for struggling small enterprises, major resumption of railway operations and revisions of the Housing Provident Fund. China’s central bank has not yet cut banks’ reserve requirement ratios but it has achieved net capital injections for the last five straight weeks.

“This indicates that the period of monetary tightening is over, which helps enhance market confidence,” the brokerage said.

Investors should keep in mind, however, that recent statistics showed a steel drop in Chinese GDP growth and a slight rebound in inflation. The road to easier credit and higher growth may not be smooth. End

DAILY FIX

Hong Kong Blue Chips: +353, +1.7%, to 21,094, 04-30-12, Hang Seng Index

Chinese Stocks in Hong Kong: +176, +1.6%, to 11,081, 04-30-12, HSCE Index

Shanghai Stocks: -0.4% to 2,396, 04-30-12, Shanghai Composite Index. Closed for a holiday until May 2.

Chinese Stocks in the U.S.: +2.7, 405.5, 04-27-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong surged along with a strong showing by market giant HSBC (HBC) and signs China is considering lowering its stamp duty tax. Blue chips broke above 21,000 again, but turnover was low because markets in China and Japan were closed for a holiday. The Hong Kong market will take a day off Tuesday. Chinese banks did well: Bank of Communications (BCMXY) +3.6%. KGI Research

Quotable: “Looking ahead, the stock market performance will very much depend on the announcements to be or likely to be made ahead of the Labour Day Holiday, including the official China’s PMI and possible policy loosening measures. Investors will also pay attention to the US employment situation to be announced next riday. We see the HSI to be range-traded next week with support at 20,400.” BEA Securities. 4-27-12

Chinese Company to Watch: XINGDA INT’L (1899) maker of radial tire cords and bead wires. “Prospective P/E of 8.4x with final DPS of HK$0.2. Chairman recently increase its stake also boost confidence.” KGI Asia. 4-30-12

Brokerages and analysts cited here 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