Funds' Cash Hoard May Cushion China Stocks

Gene Linn |

China Currency RMBFear over the growing debt crisis in Italy swamped optimism about loosening Chinese credit Thursday, driving China stocks sharply lower in Hong Kong.

Some China news also turned sour, with Goldman Sachs selling a large stake in giant Chinese bank ICBC (FXI) and Internet advertiser Tencent (TCEHY) reporting lower-than-expected third quarter earnings.

The result was a 1,000-plus-point dive by the Hang Seng Index to 18,964, a drop of 5.2%. The index of Chinese companies plunged 5.7% to 10,300. Increased turnover reflected heavy selling pressure.

But the market should find some support in coming weeks, according to Ben Kwong, chief operating officer at KGI Asia. He told Equities in an email that fund managers have a relatively large supply of cash on hand in anticipation of the usual year-end rally. That means “downward pressure will be less heavy than that experienced in early October,” he said.

Kwong expects the Hang Seng to fluctuate between 18,500 and 20,500 the rest of the year, with the European crisis causing heavy volatility.

Defensive plays continue to get a lot of attention in the current volatility. Kwong favors telecoms like China Mobile (CHL) and utilities like Guangdong Investment (GGDVY). He also rates property company LINK REIT (0823.HK) a “Buy.” End

DAILY FIX

Hong Kong Blue Chips: -1,051, =5.2%, to 18,964, 11-10-11, Hang Seng Index

Chinese Stocks in Hong Kong: -618, -5.7% to 10,300, 11-10-11, HSCE Index

Shanghai Stocks: -1.8%, 2,480, 11-09-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +3.3, to 386.9, 11:13 am ET, 11-10-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips plunged more than 1,000 points on fears of a deepening Italian debt crisis and on a spate of bad news from China. Chinese banking giant ICBC (FXI) plummetted 8.7% after Goldman Sachs sold a large stake. KGI Research

Quotable: "Market View – If Italian bond yield does not stabilize, market volatility will increase." BOCOM International. 11-10-11

Chinese Company to Watch: Internet company Tencent (TCEHY) "Openness strategy and strategic investments will cause a lower growth rate on profit in 2012/13 due to higher development cost and headcount, but we believe the results in the long run should benefit from the new development (ie. E-commerce, mobile internet services)." BOCOM International. 11-10-11

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 61.89 -0.24 -0.39 1,114,664
ESGR Enstar Group Limited 161.57 -2.75 -1.67 11,538

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