Opportunities May Emerge from Sharp China Stocks Pullback

Gene Linn  |

After struggling for weeks to maintain a long rally against persistent profit-taking, China stocks surrendered Tuesday.

The Hang Seng Index in Hong Kong plunged 2.3% to 23,149, and the index of Chinese companies plummeted 2.8% to 11,813.

The Hang Seng had narrowly managed to ride above its 10-day moving average since early December, but when it fell Tuesday, it fell hard. The immediate culprits were strong profit-taking in New York and rising political worries about debt-plagued Spain and Italy. But investors’ desire to cash in some profits after the 23.7% run-up from September 5 to February 4 turned the retreat into a rout.

However, buying opportunities may emerge from the gloom. China’s economic rebound still appears to be on track, said Peter So, managing director and co-head of research at CCB International. And he told Equities that a correction in the global bond market would likely shift money into stocks. That would be particularly good for high-growth stocks like those connected to China, he said.

Chinese financials, which were hammered Tuesday, could be among the winners. So likes Minsheng Bank (CMAKY) and ICBC (IDCBY). (So’s company, CCB International, is the brokerage arm of the giant Chinese bank, CCB.) He also thinks Chinese securities firms like Haitong (HAITY) will gain from the rally in Mainland markets, which continued Tuesday.

And in a volatile market heading into the long break for Chinese New Year next week, investors may park their money in solid defensive stocks like China Resources Power, CRPJY), So said. End


Hong Kong Blue Chips: -536, -2.3%, to 23,149, 2-5-13, Hang Seng Index

Chinese Stocks in Hong Kong: -343, -2.8%, to 11,813, 2-5-13, HSCE Index

Shanghai Stocks: +5, +0.2% to 2,433, 2-5-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: -10.9, 392.4, 2-4-13, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong plunged along with other regional markets in the wake of mounting political uncertainties in debt-strapped Spain and Italy. Sinopec (SNP) plummeted 6.4% after placing shares at a sharp discount. Chinese banks tumbled: ABC (ACGBY) -3.9%. KGI Research

Quotable: "We expect that HSI will trade within a narrow range and the 20-day MA will be the first support. If HSI loses that level, it will pull back to the lower bound of the Bollinger Band at 23,100." Core Pacific Yamaichi. 2-1-13

Chinese Company to Watch: Property and construction company Shenzhen Investment (SZNTY) "We believe the parent company's asset injection expectation helps uplift the share value, so grant Shenzhen Investment “buy” rating,..." Phillip Securities. 2-5-13

Brokerages and analysts cited here have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don’t endorse them.

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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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