European Debt Woes Weigh on China Stocks

Gene Linn |

China Central Bank People'sChina stocks valuations are almost irresistible, and the drop in Chinese inflation that investors have been waiting for has finally begun. But the gateway market of Hong Kong is in the grip of worries over European debt and U.S. economic weakness. And that grip shows no signs of relaxing soon.

Monday’s downgrade of Italian debt by S & P was a blow to market confidence. But it’s only the latest in a series. “The first half of September has been as eventful as August,” CCB International wrote in its Weekly Economic Watch on Tuesday. And by “eventful” they meant “dreadful.”

The brokerage arm of China Construction Bank presented a sobering laundry list of problems. There’s the below-average-PMI for the euro zone and the Greek and Italian slide toward default.

Prospects for a rebound in the struggling U.S. economy look bad. A much-anticipated launch of stimulus measures by the U.S. Federal Reserve Board on Wednesday would probably have limited effect, CCBI said. It points out the Fed’s QE2 stimulus failed to prevent a drop in the U.S. economy. The brokerage notes that stimulation from the fiscal side is unlikely due to U.S. politics.

To top things off, a surge in the Chicago Board Options Exchange Volatility Index reflects panic in global investors.

“Under these circumstances, we reiterate that high yielding stocks with large market
capitalization will provide defensive value in the fluctuating market,” CCBI said.

Among CCBI favorites is telecom giant China Mobile (CHL). Power Asset (HGKGY), formerly Hong Kong Electric, is another. The company has a significant China presence with coal and wind power producers.

Wharf Holdings (WARFY) has major property development and port facility operations in China. Hang Seng Bank (HSNGY) has a wholly owned subsidiary with a growing network of branches in China. The bank has a dividend yield of almost 5%.  End

DAILY FIX -- Higher in Thin, Volatile Trading

Hong Kong Blue Chips: +97, +0.5%, to 19,015, 09-20-11, Hang Seng Index

Chinese Stocks in Hong Kong: +49, +0.5% to 9,916, 09-20-11, HSCE Index

Shanghai Stocks: +0.4%, 2,448, 09-20-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -6.2 to 386.3. 09-19-2011, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong ended slightly higher in thin, volatile trading as the downgrade of Italian debt was another blow for investor confidence. Telecoms did well: China Unicom (CHU NYSE; 0728 in Hong Kong) +3.4%. KGI Research

Quotable: "Turnover of the Main Board shrank further to HK$53.6bn (on Monday), suggesting that more downside could be expected and brings more uncertainties to the market." BOCOM International. 9-19-2011

Chinese Company to Watch: "We initiate “Outperform” rating and recommend the seriously underestimated China VTM Mining (893.HK) with a “Buy” rating and TP of HK$4.7." BOCOM International.

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
CHL China Mobile Limited 61.38 -0.50 -0.81 70,465
WBAI 500.com Limited American Depositary Shares each re 17.50 -0.31 -1.74 59,460

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