Hong Kong Rally Looking Shakey

Gene Linn  |

Hong Kong stocks’ October rally continued to defy a global correction on Thursday but may be running out of steam. A downturn in Hong Kong could be a good chance to pick up China stocks that have become pricey in the last few weeks.

Hong Kong’s Hang Seng Index hit an intra-day year high of 21,840 on the way to a 0.2% rise to 21,810. Turnover remained elevated due to an inflow of foreign funds. The index of Chinese companies slipped 0.2% to 10,616.

Two strong positive factors are lifting stocks in Hong Kong, the gateway market to China. One is the prospect for new economic stimulus and reform measures from new Chinese leaders due to be installed on November 8. The other is emergence of signs the slumping Chinese economy bottomed out in the third quarter and will rebound in the last three months of the year.

However the foreign funds taking advantage of these signs may have pushed the market a bit too high.

The Relative Strength Index and other gauges of market movement show Hong Kong is “heavily overbought while the global market overall is experiencing a correction,” said Ben Kwong, chief operating officer of KGI Asia. “…{W}e expect the Hong Kong market might also face some short-term profit-taking pressure.”

A pullback would be a good opportunity to pick up Chinese infrastructure and equipment plays, he told Equities in an email. These stocks have shot up recently because they stand to benefit the most from China’s expected economic rebound and from new stimulus measures. End


Hong Kong Blue Chips: +46, +0.2, to 21,810, 10-25-12, Hang Seng Index

Chinese Stocks in Hong Kong: -22, -0.2%, to 10,616, 10-25-12, HSCE Index

Shanghai Stocks: -14, -0.4% to 2,102, 10-25-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +3.6, 391.2, 10-24-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips hit their intra-day year-high, but lack of momentum and slipping Mainland markets trimmed gains. Some second- and third-liners fell sharply after recent big rises, but Macau gambling plays like Galaxy (GXYEY) jumped 3-4%. KGI Research

Quotable: "Hong Kong market is becoming more sentiment driven.... Undoubtedly, hot money is flowing in but no one knows for certain the destination of this hot money. At this stage, it seemed that some money was going into the stock market, turnover yesterday was at HK$68bn, 35% above 30-day average. Confidence was boosted...." BOCOM International. 10-25-12

Chinese Company to Watch: China Coal "The construction of new production capacity is steadily under progress and we are bullish on its future growth potential." BOCOM International.10-25-12

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.

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