Easing European Debt Crisis Lifts China Stocks

Gene Linn |

What Europe took away from China stocks, Europe gave back this week, partly.

The week started with Hong Kong’s Hang Seng Index plunging 4.2% on Monday due to increasing worries over a possible default by Greece. The index of Chinese companies plummeted 4.8% the same day. But later in the week, Germany and France reiterated that Greece would stay in the European Union, and five international central banks injected liquidity for struggling European banks.

Boosted by an easing in the European debt crisis, the Hang Seng cut Monday’s losses in half by the end of the week. The index closed Friday down 2.1% for the week, off 426 points to 19,455. The index of Chinese companies also lost 2.1%, falling 220 points to 10,249.

News from China this week was not nearly as dramatic. One negative factor was that growth in power consumption sank 2.7 percentage points in August from July. This might reflect serious problems faced by small and medium enterprises in China, according to BOCOM International.

On a positive note, Chinese financials rebounded after recently battered China Life Insurance reported slightly better-than-expected results.

Next week it may be hard for China stocks to continue the rally of the last three days after hitting strong resistance Friday at about 19,600. BOCOM recommended in its Friday market report that “investors should stay cautious unless the HSI break its next resistance at 19500-20000pts.”

The big event scheduled next week is the U.S. Federal Reserve Board’s meeting on September 20. Many investors expect the Fed to announce new measures to stimulate the weakening U.S. economy. End

DAILY FIX -- Gains Narrowed

Hong Kong Blue Chips: +274, +1.4%, to 19,455, 09-16-11, Hang Seng Index

Chinese Stocks in Hong Kong: +198, +2.0% to 10,249, 09-16-11, HSCE Index

Shanghai Stocks: +0.1%, 2,482, 09-16-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +2.8 to 392.4. 09-14-2011, Bank of New York Mellon, ADR Index-China

Insight: Action by major international central banks to provide liquidity to struggling European banks pushed Hong Kong blue chips 365 points higher at the open, but gains narrowed after the Hang Seng Index hit strong resistance. The banks' move boosted Index heavyweight HSBC (0005) up 3.1%. China shipping plays were strong: China Shipping (CITAY) jumped 8.1%. KGI Research

Quotable: "Although HSI saw a rebound from day’s low and brought the index back to market open, the overall turnover dropped to HK$67.9bn, which was relatively low. It showed that most of the investors were cautious. We believe that HSI will keep range bounce at the low level." core Pacific Yamaichi. 9-16-2011

Chinese Company to Watch: Yanzhou Coal (YZC) "Positive coal price outlook will serve as a share price catalyst over the next six months." Guoco Capital. 9-15-2011

We expect the defensive sectors, telecom, consumer, and the Hong Kong’s property investment sector, as well as high dividend yield stocks to outperform in the coming month.... ICBC (1398.HK), Belle (1880.HK) and Zhengtong Auto (1728.HK)." CCB International. 9-9-2011.

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

Companies

Symbol Name Price Change % Volume
ACH Aluminum Corporation of China Limited American Dep 11.31 -0.26 -2.25 36,332
YZC Yanzhou Coal Mining Company Limited 7.61 -0.08 -1.04 11,605

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