Stock markets around the world are sinking in a lack of liquidity. Investors don’t have funds to pour into stocks, corporations have trouble getting the loans they need and as the appetite for risk decreases more money goes into cash.
But liquidity and stocks are going to expand earlier and stronger in the China and Hong Kong markets than in the U.S., according to Peter So, head of research at CCB International.
For now China is deliberately tightening liquidity to fight inflation. The government will continue to raise banks’ reserve requirement ratios to restrict lending, So told Equities. CCB International also expects one more interest rate increase in China.
In the U.S. the Fed apparently is closing the money spigot on the struggling recovery. The Fed’’s second round of quantitative easing, QE2, is ending this month, and chairman Bernanke has given no indication there will be a QE3.
Prospects for more liquidity are better in China, So said, because inflation should peak this month. “When July data is released there will be a gradual decrease in inflation, and this will comfort the market,” he said. “With less inflation there’s a better chance the government will refrain from further tightening of banks.”
The result, according to So, will be a “re-allocation (of funds) in favor of China and Hong Kong.” He predicted Hong Kong’s blue-chip Hang Seng Index would end the year at about 28,000, up around 24% from Thursday’s close. He said the index for Chinese companies in Hong Kong would rise to approximately 16,000, some 28% higher.
Chinese companies that tap into consumer discretionary spending will be appealing because their products are relatively free of government price controls, So said.
Currently he likes supermarket chains because they have strong cash flow and aren’t affected so much by lack of liquidity. He also likes fashion wares and accessories company I.T Ltd (999 in Hong Kong) and car parts and services firm Zheng Tong Auto (1728). End
Hong Kong Blue Chips: -52, -0.2%, to 22,610, 06-09-11, Hang Seng Index
Chinese Stocks in Hong Kong: -109, -0.9% to 12,473, 06-09-11, HSCE Index
Shanghai Stocks: -1.7%, 2,703, 06-09-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -4.7 to 422.0, 06-08-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips closed below the 250-day moving average and sank as much as 289 points but losses narrowed after the local land auction. Turnover rose in volatile trading. Chinese automakers were mixed after the government announced a plan to subsidize car purchases. KGI Research
Quotable: "Market is expecting that the rebound of A-shares this week could boost HSI performance, but we think it is unlikely to happen given a low turnover and a lack of market highlights." BOCOM International. 6-9-2011
Chinese Company to Watch: "We are positive on the toll road sector, which will benefit from resilient economic activities. Our top picks for bargain hunting include Sichuan Expressway (0107.HK, $4.18, BUY) and Anhui Expressway (0995.HK, $6.42, BUY), which are trading at undemanding high single-digit forward P/Es." Haitong Securities. 6-8-2011
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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
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