'Great Shock' -- China Stocks Drop Sharply

Gene Linn  |

Didn’t see that coming. China stocks plunged Monday to start what many had expected to be a quiet week of trading.

Hong Kong’s Hang Seng Index plummeted 3.0% to 19,053 as turnover remained thin, but rose from last week’s levels. The index of Chinese companies sank 3.1% to 9,272.

Some observers thought there would be a lull this week between release of Chinese economic data last week and the start of major corporations’ reporting next week.

Instead, they got a “great shock” as stock prices tumbled, according to Jackson Wong, vice president of sales at Tanrich Securities. The main culprits were a resurgence of fear over the debt crisis in Spain and Italy and lack of major economic stimulus policies from China, he told Equities in an email.

Infrastructure plays, properties and insurers will probably rebound relatively quickly in the short term because China has targeted limited stimulus policies that will help these sectors, Wong said. Possible winners include China Railway Construction (CWYCY), China Overseas Land (CAOVY) and China Life (CFC).

Upcoming results from Apple could influence the market “because it's considered a thermometer of … consumers’ spending behavior,” Wong said. End


Hong Kong Blue Chips: -587, -3.0%, to 19,053, 07-23-12, Hang Seng Index

Chinese Stocks in Hong Kong: -299, -3.1%, to 9,272, 07-23-12, HSCE Index

Shanghai Stocks: -27, -1.3% to 2,141, 07-23-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -2.0, 365.0, 07-20-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong opened sharply lower after high bond yields in Spain and Italy renewed worries about the European debt crisis. Losses continued to grow when Mainland markets declined. Last week's winners in the infrastructure, property and insurance sectors retreated headlong. Insurer CPIC (2601, HK) plunged 10% on institutional share placements. KGI Research

Quotable: "It was reported that 49 profit warnings were issued in the past two weeks, an increase of 145% compared to the same period last year.... Trading may turn even cautious as the interim results season for Hong Kong-listed companies draws near. On the technical front, 20,000 would be a critical resistance level for the HSI. Once HSI breaks through such level, another new wave of rally of Hong Kong stocks may begin." BEA Securities, 7-20-12

Chinese Company to Watch: "...{W}e are more positive to China Telecom (CHA) in longer term, as the handset subsidy cost impact on its earnings will gradually be faded in 2013. Together with its highest 3G subscriber portion and strong recurrence income from fixed line business, the counter is our top pick for the sector and suggest to accumulate below HK$3.50." KGI Asia. 7-23-12

Brokerages and analysts cited here have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don’t endorse them.

Trade Commission-FREE with Tradier Brokerage

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 necessarily 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.

Market Movers

Sponsored Financial Content