Japan Quake Adds Volatility to Hong Kong Market

Gene Linn |

The massive earthquake in Japan and resulting tsunami rocked a Hong Kong market that was already fluctuating widely due to spikes in oil prices. Oil continues to be the big story for China-related stocks in Hong Kong, a story that is even scarier than the one for stocks in the U.S. and some other developed markets. On the other hand, Chinese stocks listed in Hong Kong, H-shares, look poised to report solid earnings that will boost their prices.

The result of this tug of war has been volatility this week that will likely extend into next week, Conita Hung, head of equities at Delta Asia, told the Weekly report.

A surge in stocks Tuesday combined with big losses Thursday and Friday left the blue chip Hang Seng Index down 0.7%, 159 points, at 23,250. The index of Chinese companies fell 0.8%, 108 points, to 12,752.

Rising oil prices fueled by unrest in North Africa and the Middle East hits the Chinese economy particularly hard, according to a study reported by BOCOM International. A 10% rise in the price of crude oil pushes China’s economy down 0.9 percentage points compared to 0.1 for the U.S., the study said, partly because manufacturing accounts for a smaller part of U.S. industry.

Hung added, “The oil price is a major concern for China stocks. If it continues to rise, China’s inflation will be a bigger problem.”Chinese inflation-fighting economic tightening has been a big drag on the market already this year.

But all is not gloom and doom. Most H shares will report results in the coming two weeks. Hung expects Chinese banks and insurers, who have seen prices sink recently, will post strong enough profits to spark a rally. “Next week the Hang Seng should trade between 23,200 and 23,800,”she said.  End

DAILY FIX

Hong Kong Blue Chips: -365, -1.6%, to 23,250, 03-11-11, Heng Seng Index

Chinese Stocks in Hong Kong: -241, -1.8% to 12,752, 03-11-11, HSCE Index

Chinese Stocks in the U.S.: -7.3 to 433.7 03-10-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong opened lower in line with weakness in global markets and then plunged after a major earthquake hit Japan and caused a dangerous tsunami. The blue chip index sank as much as 500 points before closing down 365 in increased turnover. Chinese banks fell on worries of interest rate hikes: ABC (1285) -2.7%. KGI Research

Quotable: "Disappointing (Chinese) economic data and political concerns in Saudi Arabia caused a deep correction in the US stock markets yesterday. We expect the Hang Seng Index to drop below 23,000 in near term." Guoco Daoheng Securities. 3-11-2011

Company to Watch: "Power Assets (006). The Group’s change of name indicates its global focus. It will expand its business overseas in Australia and UK, in addition to the Mainland and Hong Kong. Buy $52.00 Target $60.00 Cut loss $48.00. Fulbright Securities. 3-11-2011

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