Euro Optimism Buoys China Stocks

Gene Linn  |

Basking in the glow of the latest European promise to address its debt crisis, China stocks look like they will maintain a strong tone at least until Thursday when the European Central Bank meets to work on concrete measures to deal with the deteriorating debt problem. If Europe’s leaders can’t walk the walk after talking the talk, recent China stocks gains may well disappear.
Hong Kong’s Hang Seng Index climbed 1.6% Monday to 19,585, following a 2.0% surge Friday. The index of Chinese companies rose 1.3% to 9,523.

Corporate results scheduled this week from Hong Kong heavyweights like HSBC and Cheung Kong will support the current rally, according to Jackson Wong, vice president of sales at Tanrich Securities.
“So, prior to the ECB announcement, we should still see resistance at (the) 250-day moving average, a Bull/Bear line closely watched in HK , at 19650,” he told Equities in an email. “If the ECB fails to deliver again, we might retreat back to 18,800….” Before Thursday “we should be relatively safe,” Wong said.

Stocks beaten down in previous selloffs – especially Chinese banks and Macau gambling plays – are rebounding on improved market sentiment, he said, but it is probably only a short-term bounce. Chinese infrastructure and property stocks are pausing after strong gains last week. End

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Hong Kong Blue Chips: +310, +1.6%, to 19,585, 07-30-12, Hang Seng Index

Chinese Stocks in Hong Kong: +125, +1.3%, to 9,523, 07-30-12, HSCE Index

Shanghai Stocks: -19, -0.9% to 2,110, 07-30-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +8.2, 372.1, 07-27-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong extended Friday's rally as European leaders continued to talk optimistically about dealing with the region's debt crisis. Market leader HSBC (HBC) gained 1.7% ahead of release of results this week, and Chinese banks added 1% to 2%. KGI Research

Quotable: "For the coming week, the official reading of China Manufacturing PMI as well as interim results of blue chips such as HSBC (5.HK) and Standard Chartered (2888.HK) will likely draw investors’ focus. Besides, the Bank of England and the ECB will announce interest rates decision, which may also affect the market direction. The HSI is expected to see resistance level at 19,600 points." BEA Securities. 7-27-12

Chinese Company to Watch: "DIGITAL CHINA (STV) Benefit from its improved software business which will boost its gross margin. Prospective P/E of 8.7x with dividend yield of 4%, could accumulate during weakness." KGI Asia. 7-30-12

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