China stocks hibernated Tuesday but they may soon emerge to resume their recent rally.
Hong Kong’s Hang Seng Index finished virtually unchanged at 20,699 on minimal turnover, and the index of Chinese companies edged 0.2% lower to 9,745.
There are a lot of reasons for China stocks to take a breather. One is that it is natural for the market to consolidate after a run-up of 8.1% since September 5 due to the launch of stimulus policies by central banks in the U.S. and Europe.
Investors are also backing off ahead of China’s Golden Week Holiday. Chinese markets will close all next week on a combination of National Day and Mid-Autumn Festival celebrations. Hong Kong will close next Monday and Tuesday.
But the money-easing policies that first spurred the September rally are supplying a tide of cash that should lift stocks even higher in the near term.
“The funds flow In the middle of last week reached a four-year high,” said Steven Leung, director of institutional sales at UOB Kay Hian. “Investors are waiting for another round of good news to push the market higher.”
Successful resolution of the Spain bailout would be a solid piece of good news. Expected added Chinese stimulus of infrastructure projects and end-of-quarter window dressing may be enough to allow the Hang Seng to test 21,000, Leung told Equities.
Further upside may be limited by continued economic weakness in China, he said. His target for the end of the year is 21,800.
Chinese banks and insurers will probably lead the way for more gains, according to Leung. In the short term, the flood of tourists leaving China next week will help Macau gambling stocks and Hong Kong consumer plays like cosmetics company Sa Sa (178, HK). End
Hong Kong Blue Chips: +4, +0.02%, to 20,699, 09-25-12, Hang Seng Index
Chinese Stocks in Hong Kong: -22, -0.2, to 9,745, 09-25-12, HSCE Index
Shanghai Stocks: -4, -0.2% to 2,029, 09-25-12, Shanghai Composite Index.
CHinese Stocks in the U.S.: -0.4, 376.8, 09-24-12, Bank of New York Mellon, ADR Index-China
Insight: Consolidating from a recent sharp rally, Hong Kong blue chips traded quietly in a narrow range to end almost unchanged. KGI Research
Quotable: “The Spanish bailout plan, if approved, will be a new stimulus to the market.” BOCOM International. 9-25-12
Chinese Company to Watch: Prada (PRDSY) “In our view, the scope for network expansion supported by its potential in underpenetrated markets, including the developed markets, rising iconic brand recognition and margin strength are Prada’s key sustaining differentiating drivers vs. peers….” BOCOM International. 9-25-12
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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