Inflation Spike Pushes China Stocks Lower

Gene Linn |

China Stocks RMBDiscouraging news on inflation Friday caused China stocks to end an up-down-week on a low note.

The Hang Seng Index In Hong Kong, after opening higher, ended down 0.4% at 23,264 due to release of CPI figures that hit a six-month high. The index of Chinese companies slumped 0.7% to 11,843.

The Hang Seng has bounced around in a narrow range since reaching a 22-month high Thursday last week, ending this week 0.5% lower. The index of Chinese companies fell 0.8%.

But the market looks like it’s still on track to resume its rally after a short consolidation. Higher inflation was a blow that might dim prospects of further monetary loosening, but the spike may be a temporary result of the effect of severe weather on food prices. Even with the higher CPI, the Hang Seng stayed above its resistance level at the 10-day moving average, 23,171.

On the plus side, Japan moved Friday to increase liquidity, according to Ben Kwong, chief operating officer at KGI Asia. And he told Equities in an email that the strong rebound in December exports announced Thursday may presage a good result when China announces fourth quarter GDP next Friday.

One focus of the market will be renewable energy in response to the Chinese government’s moves to increase demand, Kwong said. “However, as a significant part of those stocks have already accumulated substantial gains, we suggest investors to accumulate that sector during weakness,” he said. End

DAILY FIX

Hong Kong Blue Chips: -90, -0.4%, to 23,264, 1-11-13, Hang Seng Index

Chinese Stocks in Hong Kong: -89, -0.7%, to 11,843, 1-11-13, HSCE Index

Shanghai Stocks: -41, -1.8% to 2,243, 1-11-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: +7.3, 413.4, 1-10-13, Bank of New York Mellon, ADR Index-China

Insight: After opening 128 points higher, Hong Kong blue chips lost ground when China's December inflation number came in at a six-month high. Pharmaceuticals fell when the government announced a reduction in some drug prices: United Labs (ULIHY) -4%. Research

Quotable: "The index (on Thursday) remained at the level above 23,400 for the whole morning session and once reached the intraday peak of 23,477. Then, the gain narrowed down but the overall turnover continued to be high. This showed that the market momentum was still strong." Core Pacific Yamaichi. 1-11-13

Chinese Company to Watch: Cosmetics company Sa Sa (SAXJY) "With its product sales resilience and the sustainable solid sales stream from Chinese tourists' spending, we believe Sa Sa’s defensiveness continues to stand out." BOCOM International. 1-11-13

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.

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 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

Companies

Symbol Name Price Change % Volume
MUX:CA McEwen Mining Inc. 3.90 -0.36 -8.45 527,412

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