Smoking valuations and healthy corporate profits in the Hong Kong market might again spur a short-lived rally, as they did early last week. The blue-chip Hang Seng Index is still trading at near-historic lows of 10-to-11X PE for FY 2011. More China stocks are expected to report healthy first half 2011 profits. Geely Automobile (0175 in Hong Kong), oil producer CNOOC (0883) and banking giant ICBC (1398) are among China plays releasing results this week.
But focus has shifted firmly to the deepening of the European debt crisis and growing prospects for a U.S. recession. That gloomy focus sent China stocks into a tailspin late last week.
“Even if there are some rebounds in the coming weeks, we think the magnitude of rebound would be limited unless major good news surface(s), such as the launch of QE3 by the Federal Reserve,” BOCOM International stated in its Market Insight.
The Fed will have a chance to launch a new round of easy money, the so-called QE3, in a major meeting this Friday.
But there is little chance for good news about European debt, according to BOCOM. The broker said Euro zone leaders are adopting a “do nothing” strategy to buy time before coming up with a long-term solution, probably in response to the threat of an economic collapse.
“It is reasonable to assume that more bad news will come from Europe in the future(; it’s) just a matter of timing,” BOCOM said. END
DAILY FIX -- China Plays Slide in Volatile Trading
Hong Kong Blue Chips: +87, +0.4%, to 19,487, 08-22-11, Hang Seng Index
Chinese Stocks in Hong Kong: -32, -0.3% to 10,246, 08-22-11, HSCE Index
Shanghai Stocks: -0.7%, 2,516, 08-22-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -2.2 to 378.1, 08-19-2011, Bank of New York Mellon, ADR Index-China
Insight: Major China plays slumped in volatile trading in Hong Kong. Bargain-hunting drove the blue-chip index up more than 260 points at one time before selling pressure set in. Higher turnover reflected keen competition between bears and bulls. Chinese banks and properties, which had been strong recently, fell. Gold and cement producers also sank. KGI Research
Quotable: "In addition to numerous earnings reports in late August, investors should also pay attention to next Friday's US economic policy symposium in Jackson Hole, Wyoming. The market has been increasingly speculating that Chairman Ben Bernanke will signal additional easing measures (QE3) at the meeting. The HSI is likely to test the recent low of 18,868 next week." BEA Securities. 8-19-2011
Chinese Company to Watch: "While we expect solid profit contribution growth ahead from CITIC Pacific’s (0267) core special steel and property businesses and various peripheral units, the inauguration of its iron ore operation is expected to provide the wild card for earnings growth in the coming two to three years." Haitong Securities. 8-22-2011
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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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