Gene Linn: China Stocks -- Hong Kong Rally Ends With Whimper

Gene Linn  |

The 2,000-point blue chip rally of the previous three weeks ended with a whimper this week. High-end Chinese economic figures released Friday mean a quick return to the rally is unlikely, Conita Hung, head of research at Delta Asia Financial, told the Weekly Report.

Hong Kong stocks meandered for four-and-a-half days in a narrow range awaiting direction from release of Chinese economic data Friday. After first quarter GDP came in strong and March inflation was the highest in three years, it is still waiting.

Major Chinese stock indexes ended Friday little changed in volatile trading. For the week the blue chip Hang Seng index fell 1.2%, 300 points, to 24,006. The index of Chinese stocks fell 0.9%, 119 points, to 13,534.

The economic statistics seem to foreshadow a rise in interest rates or increase in bank reserve requirements to fight inflation. “Initially, strong results are negative for the market, but eventually they could benefit stocks because (after a rate hike) they will clear away concern for interest rate hikes,” Hung said.

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Chinese banks should gain from concern about interest rate hikes, Hung said, but properties may retreat. Retailers offering gift items, such as jewelry, are likely to prosper due to the approach of the long Chinese holiday of Golden Week in early May.

Hung expects support next week at 23,500 and resistance at 24,500.  End


Hong Kong Blue Chips: -6, -0.02%, to 24,008, 04-15-11, Heng Seng Index

Chinese Stocks in Hong Kong: -52, -0.4% to 13,534, 04-15-11, HSCE Index

Chinese Stocks in the U.S.: -0.02 to 460.7, 04-14-11, Bank of New York Mellon, ADR Index-China

Insight: Stocks were volatile as much-awaited Chinese economic statistics were released, but ended little changed. Cosmetic, apparel and jewelry plays gained with the approach of the Golden Week holiday in China. Aviation companies also rose, due to appreciation of the RMB. KGI Research

Quotable: China banking sector. "Investors are advised to grasp investment opportunities arising from beating 1Q11 results. “Outperform” rating maintained." BOCOM International. 4-15-2011

Company to Watch: "Xinjiang Goldwind (2208): The global leader of Permanent Magnet Direct-Drive (PMDD) wind turbine generator will continue to gain market share and the company would benefit from the 12th Five-Year Plan." Core Pacific Yamaichi. 4-15-2011

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