Investors Watch Stocks as Chinese Interest Rate Hike Looms

Gene Linn  |

Hong Kong stocks followed the Shanghai exchange down this week, with the Chinese market undermined by rumors of an interest rate hike ahead of the Mainland’s Labor Day holiday next Monday through Wednesday. Eric Yuen, head of research at Guoco Capital, told the Weekly Report the trend toward economic tightening would likely squelch any major stock rebound.

For the week the blue chip Hang Seng Index slumped 1.7%, 417 points, to 23,721. The index of Chinese companies fell almost twice as much, 3.3%, 450 points, to 13,209. The Hong Kong market will be closed for a holiday Monday.

Not only does a Chinese weekend interest rise loom over the markets, but China is taking steps to cool off the property market to quell stubborn inflation.  “The situation will not change until inflation is under control, probably in the third quarter,” Yuen said. “We don’t expect Shanghai and Hong Kong to have a strong rally (in the short term).”

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However Chinese banks just released better-than-expected results and should outperform the market for a month or two, Yuen said. Next week with Chinese markets closed until Thursday and most corporate results already released, the market will probably be moved by news from the U.S. and Europe.

For the longer term, Yuen said, attractive valuations should fuel a rebound in the second half of 2011. Yuen expects the blue chip index to hit 27,000 to 28,000 by the end of the year.  End


Hong Kong Blue Chips: -85, -0.4%, to 23,721, 04-29-11, Heng Seng Index

Chinese Stocks in Hong Kong: -111, -0.8% to 13,209, 04-29-11, HSCE Index

Chinese Stocks in the U.S.: -3.2 to 454.6, 04-28-11, Bank of New York Mellon, ADR Index-China

Insight: The prospect of a Chinese interest rate increase and weak Chinese stock markets pulled Hong Kong stocks down again. Turnover was lackluster ahead of the Labor Day holiday in Hong Kong and China. KGI Research

Quotable: "We continue to see 24,500 as a strong technical resistance for the Hang Seng Index in near term." Guoco Capital. 4-27-2011

Company to Watch: "In light of the low valuations of most property counters, we maintain our view that developers with exposure to lower-tier cities, including Shimao Property (813 HK, Outperform) and Glorious Property (845 HK, Outperform), will draw the attention of investors." CCB Securities. 4-26-2011

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