China stocks rebounded sharply Tuesday, boosted by short and long-term factors. Hong Kong’s Hang Seng Index surged 4.2% to 18,131, and the index of Chinese stocks jumped 6.4% to 9,294.
Short-term considerations played the major role, mainly because China stocks were substantially oversold after the Hang Seng Index lost 10.5% in the previous six trading days. The index of Chinese companies plunged 14.7% in the same period.
“Today the short sellers are taking some profit off the table and bargain hunters are coming in for short term trades,” Jackson Wong, Tanrich Securities investment manager, told Equities in an email.
Short sellers gained almost 2,000 points this month, as Hang Seng Index futures are set to expire on Thursday at around 18,000, according to Wong.
In a longer term perspective European leaders seem to be coming up with a plan to shore up major banks threatened by the region’s debt crisis. Fear of a European financial meltdown has been the prime reason for the recent sell-off. A fundamental solution to the crisis, however, still seems out of reach.
Big winners in Tuesday’s rebound were materials plays such as copper producers, cement producers, high-end retailers and Macau gambling stocks, Wong said. He noted they are prime candidates for short-term trading because they tend to have more volatile price swings.
“Heavily weighted Chinese financial stocks are making a run as well due to their steep sell off yesterday (Monday),” Wong said.
For the rest of the week, he said there seems to be little sustainable upside momentum, with heavy resistance at 18,200. End
DAILY FIX — Oversold Market Rebounds
Hong Kong Blue Chips: +723, +4.2%, to 18,131, 09-27-11, Hang Seng Index
Chinese Stocks in Hong Kong: +559, +6.4% to 9,292, 09-27-11, HSCE Index
Shanghai Stocks: +0.9%, 2,415, 09-27-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +2.6 to 361.3, 09-26-11, Bank of New York Mellon, ADR Index-China
Insight: News that European authorities are devising a plan to shore up big banks threatened be the region’s debt crisis helped ignite a strong rebound in the substantially oversold Hong Kong market. Ping An Insurance (PNGAY) rose 10.1% after the company said its capital status was healthy. Chinese banks made strong gains: CMB (CIHKY) +10.4%. KGI Research
Quotable: “HK market rebounded from trough at 16,999 (on Monday), showing investors believed that this level will be a strong support.” Core Pacific Yamaichi. 9-26-2011
Chinese Company to Watch: “We believe the market’s general view of Shanghai Electric (SIELF.PK) as a power equipment manufacturer underestimates the company’s true value. With leading positions in multiple businesses (around 30%, 50% and 15% shares of China’s thermal, nuclear island and elevator markets), SE’s diversification places it at an unique position as a conglomerate to benefit from a number of growth opportunities while mitigating risks relating to temporary glitches in the new energy segment.” Haitong Securities. 9-27-2011
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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