Next Week May Be Exciting for China Stocks

Gene Linn |

Shanghai Stock MarketNear-euphoria over expectations of bountiful corporate results clashed in the Hong Kong stock market this week with worry about a U.S. default, and the winner was -- nobody. Next week could get exciting quick.

The blue-chip Hang Seng Index ended the week virtually unchanged, sinking 5 points to 22,440. The index for Chinese companies fared a bit worse, dropping 1.8%, 225 points, to 12,374. One main reason for the decline is that investors think Chinese stocks won’t get as big a boost as local Hong Kong companies from rising corporate profits in coming weeks. Also, worry persists about Chinese inflation, falling growth and continuing economic tightening.

Investors could get some direction on all three major factors early next week. Concerning corporate profits, market giant HSBC will announce results Monday (Sunday night in the U.S.). Haitong Securities expects HSBC to post a surge in net profits for the first half of 2011 of 26% year-on-year. “The 1H11 growth will be driven by lower loan impairment charges in the US in addition to an acceleration of revenue growth in the Asia-Pacific region, particularly in Hong Kong,” the brokerage said on its website.

The state of the Chinese economy will become a little more clear when the official manufacturing PMI is released Monday. The “flash” PMI for July announced on July 21 sank to 48.9, indicating a slowdown in manufacturing. BOCOM International said on its website the final figure will be 50.4%. That would be a decline from June, but still indicate manufacturing is growing a bit.

The big drama surrounds the possibility of a U.S. default as early as next Tuesday. That would be after Hong Kong closes Tuesday. Hong Kong analysts cling to the expectation that squabbling U.S. politicians will find a solution to raise the debt ceiling and avoid the unthinkable. If they’re right, the results-driven Hong Kong rally can gather steam. If not, the Hong Kong market won’t suffer as much as Wall Street, but it won’t be pretty. End

DAILY FIX -- Below the 50-Day Moving Average

Hong Kong Blue Chips: -130, -0.6%, to 22,440, 07-29-11, Hang Seng Index

Chinese Stocks in Hong Kong: -144, -1.2% to 12,374, 07-29-11, HSCE Index

Shanghai Stocks: -0.2%, 2,702, 07-29-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +1.5 to 441.8, 07-28-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips sank below the 50-day moving average in slow turnover. Chnese cement producers continued to slump due to low cement prices: Anhui (0914) -3.4%. Chinese auto retailer Zhengtong (1728) tumbled 8.4% after large shareholders sold stock. KGI Research

Quotable: "HSI opened low and closed high (Thursday).... It showed that most of the investors were optimistic in short term. Particularly, some brokerage houses adjusted the profit estimates for the 1H this year. It helped the market to gain and the target of 22,800 to 22,900 for HSI was still achievable." Core Pacific Yamaichi. 7-29-2011

Chinese Company to Watch: Sinotrans (0598) "The economic bellwether’s outlook is at the mercy of the global economy, given that logistics services demand is closely correlated to trade performance, but the respective resilient 35% and 26% yoy recovery in the total value of the mainland’s external trade in 2010 and 1H11 boosted Sinotrans’ various operations,... We recommend accumulation on weakness...." Haitong Securities. 7-29-2011

Brokerages and analysts cited 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

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