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Hint of Credit Easing Boosts China Stocks

A hint of credit loosening in China trumped worries about Europe’s debt debacle, sending China stocks higher Wednesday.Chinese Premier Wen Jiabao stated in official media outlets that China

A hint of credit loosening in China trumped worries about Europe’s debt debacle, sending China stocks higher Wednesday.

Chinese Premier Wen Jiabao stated in official media outlets that China would adjust macro economic policy at “an appropriate time and by a suitable amount.”

That’s not exactly a ringing declaration of a new easing policy. But given the current slowdown in economies in China and in overseas Chinese export markets and gradually falling Chinese inflation, investors take it as a sign that China will fairly soon ease inflation-fighting tight money policies.

Adding to hopes for a long-awaited easing are on-going strong third quarter results from big Chinese companies and PMI figures released early this week indicating an uptick in Chinese manufacturing.

Good news from China pushed the index of Chinese companies in the Hong Kong market up 1.9% to 10,051. The Hang Seng Index extended its robust rally, rising 0.5% to edge over the 19,000 resistance point to 19,067.

However, worries about the European debt crisis have not completely lost their grip on the market. Cancellation of an EU financial ministers meeting hurt confidence in a solution to the crisis and pushed the Hang Seng down at Wednesday’s open, according to Ben Kwong, chief operating officer at KGI Asia.

Low turnover indicates investors are taking to the sideline to wait and see the result of the European economic summit later on Wednesday, he said.

Failure to reach a comprehensive solution to the debt problem will “of course have a significant impact on investors’ confidence,” Kwong told Equities in an email. “If they could agree, market sentiment will be better. However, market focus will then move to see the execution detail of the proposed bond insurance plan.”

In the meantime, he said, the prospect of Chinese credit easing is shifting investors’ focus to companies with fixed assets, such as cement producers and commodity plays. End

DAILY FIX — Prospect of Credit Easing Sparks Rebound

Hong Kong Blue Chips: +98, +0.5%, to 19,067, 10-26-11, Hang Seng Index

Chinese Stocks in Hong Kong: +190, +1.9% to 10,051, 10-26-11, HSCE Index

Shanghai Stocks: +0.7%, 2,427, 10-26-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -8.1, to 371.1, 10-25-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong opened lower after cancellation of a European finance ministers meeting hurt confidence in efforts to find a solution to the region’s debt crisis, but rebounded after a statement by Chinese Premier Wen Jiabao indicated China may ease its tight money policies. Prospect for easing helped cement producers: Anhui Conch (AHCHY,3323 in Hong Kong) jumped 9.4% higher. KGI Research

Quotable: “Technically, HSI breaking 50-day MA could serve as the first “BUY” signal for the market. However, if we consider the other factors including low turnover…, we can not conclude that the market momentum is turning around.” Core Pacific Yamaichi. 10-26-11

Chinese Company to Watch: Property developers. “Weak financials should raise concern. Within the context of recent price declines, we believe that high net gearing remains risky and companies such as R&F Properties (GZUNY, 2777 in Hong Kong) ( Underperform) could suffer in the short-term.” CCB International. 10-26-11

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.
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