Gene Linn: China, Hong Kong Markets Back From the Brink

Gene Linn  |

Talk about a bad start. On Monday Hong Kong stocks fell sharply after China raised banks’ reserve requirements over the weekend. The next day the S&P issued a negative outlook on the U.S. economy and global markets plunged. But stocks worldwide bounced back quickly.

Hong Kong is in a good position to continue to rise in the short and medium term, Benny Wong, research director at BOCOM International, told the Weekly Report.

Hong Kong blue chips plummeted 487 points on the first two days of the week. But as trading ended Thursday ahead of the Easter holiday, the blue chip Hang Seng Index posted a weekly gain of 130 points, 0.05% to 24,138. The index of Chinese companies rose 1.0%, 125 points, to 13,659.

History shows that the S & P verdict is not the end of the world. “I found that the S & P did the same thing in the mid-1990s, and within a year it restored its positive outlook for the U.S.,” Wong said. “This time may be no different.”

Emerging markets are well placed to extend the rebound, especially Hong Kong, according to Wong. “It’s quite possible some funds may flow back into Hong Kong because we are really cheap,” he said. In addition, many economists expect Chinese inflation to peak in June. That would mean China would at least temporarily halt the economic tightening that has been weighing on stocks, Wong said.

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“I think Hong Kong will break 25,000, I’d guess in the third quarter,” Wong said. Meanwhile, he said, the big rebound of Wednesday and Thursday will probably continue at a slower pace next week.

One leader will be Chinese banks because of their low prices. Big commodity producers will be helped by China’s recent decision to clear excess output by smaller makers of aluminum and other materials.  End


Hong Kong Blue Chips: +242, +1.0%, to 24,138, 04-21-11, Heng Seng Index

Chinese Stocks in Hong Kong: +167, +1.2% to 13,659, 04-21-11, HSCE Index

Chinese Stocks in the U.S.: +5.9 to 462.7, 04-20-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong mirrored big gains in the U.S., although turnover was moderate ahead of a holiday Friday. Construction and cement plays rose: CNBM (3323) +5.3%. Chinese aluminum producers also posted gains. KGI Research

Quotable: "Although we predict one more 50bp RRR hike and another 25bp interest rate hike by 2Q11, we believe China’s overall policy tightening will end in mid-2Q11 and this will improve market sentiment in 2H11." CCB Securities. 4-18-2011

Company to Watch: "Evergrande (3333), the third largest Chinese property developer listed on HKEx in terms of market capitalization, is the largest supplier of residential properties in terms of sales area.... Evergrande’s share price retreated 6% in past three days due to profit taking. However, valuation remains cheap compared with peers and deserves a BUY recommendation." Guoco Capital. 4-20-2011

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DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of 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:


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