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October Looks Tepid for China Stocks

The hoped-for China stocks rally after last week’s Golden Week holiday continued to sputter Wednesday as prospects for a dramatic rise in Chinese A-shares and the launch of new central

The hoped-for China stocks rally after last week’s Golden Week holiday continued to sputter Wednesday as prospects for a dramatic rise in Chinese A-shares and the launch of new central government policies faded.

Hong Kong’s Hang Seng Index slipped 0.1% to 20,920 in thin turnover, and the index of Chinese companies rose 0.7% to 10,041.

The Shanghai Composite Index of A-shares staged only a meek rebound from early losses Wednesday to finish 0.2% higher at 2,120.

Foreigners’ access to A-shares is severely limited, but some investors had hoped the market in A-shares would lead China stocks in Hong Kong and abroad higher, buoyed by expectations a change in Chinese leadership set for November 8 would spawn new measures to reform and stimulate China’s struggling economy.

However, it’s beginning to look like there won’t be much short-term help from A-shares or new policies.

Ben Kwong, chief operating officer at KGI Asia, said investors “are unlikely to see (many) new measures launched.” One reason is that China is already aggressively adding short-term capital to the economy by buying securities through reverse repurchase agreements, he told Equities in an email. These measures are being unrolled gradually with little fanfare. They make it less likely authorities will resort to more dramatic steps like a cut in banks’ reserve ratio requirement that would give stocks a boost.

“We expect A-share market to remain range trading (before) Nov 8,” Kwong said.

Another obstacle for stocks on the Mainland and in Hong Kong is likely to be results reporting season this month, he said. Corporate results for Chinese companies for the third quarter are expected to be weak.

One victim of reduced expectations is likely to be the commodities-producing sector, according to Kwong. An anticipated rebound in the Chinese economy had supported prices of commodities, but a potential rise in the U.S. dollar threatens the upside of commodities. End


Hong Kong Blue Chips: -18, -0.1%, to 20,920, 10-10-12, Hang Seng Index

Chinese Stocks in Hong Kong: +74, +0.7%, to 10,041, 10-10-12, HSCE Index

Shanghai Stocks: +5, +0.2% to 2,120, 10-10-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -2.7, 374.6, 10-9-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips cut early losses thanks to a slight gain on Mainland markets. Bargain-hunting helped companies that have been hurt by anti-Japanese feelings in China: Dong Feng Motor (DNFGY) +4.1%. KGI Research

Quotable: “We maintain our year-end target for the Hang Seng Index at 21,500 and believe H shares will outperform the market in the fourth quarter.: Guoco Capital. 10-10-12

Chinese Company to Watch: Telecommunications equipment maket ZTE (ZTCOY) “BUY ZTE. in view of robust recovery in 2013 onwards ZTE Corporation (763, $11.90, “ZTE”) has corrected 11% in two days mainly on two pieces of news: 1) after 1 year of investigation on ZTE and Hauwei, the U.S. House of Representatives released the “verdict” and recommended U.S. firms to avoid using the equipment provided by ZTE and Huawei; 2) Cisco terminated the strategic partnership greement with ZTE. mments: We consider the negative impact of these two pieces of news is limited and the correction provides a d chance to accumulate ZTE.” Guoco Capital. 10-10-12

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For a list of Chinese companies sold in the U.S. and information on each company go to

Any change significant enough to matter draws vigorous opposition from those who depend on the status quo.
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