'Pessimist' Sees More Downside for China Stocks

Gene Linn  |

China stocks continued their two-week swoon on Thursday, and one analyst maintains the worst is not over.

The Hang Seng Index in Hong Kong dropped 1.3% to 20,609, and the index of Chinese stocks sank 1.6% to 10,533.

Underlying recent losses is concern that Chinese economic growth will continue to weaken. The analyst cited in yesterday’s column thinks these worries are “overblown,” and China stocks are poised for a rebound. But there is another way to look at the market.

A different analyst, who asked not be named, is a self-proclaimed pessimist. He noted the Hang Seng rose 10% in January, 6% in February and has dropped 5% so far in March.

“The upward momentum is slowing and turnover (being thin) does not match that a bull run is coming,” this observer told Equities in an email. “I think capital is moving to other Asian markets, Thailand is up 3% in March and Indonesia is up 2.”

He noted that China announced Tuesday that profit at Chinese industrial companies fell 5.2% in January through February, the first decline since 2009. This suggests that consensus earnings estimates may be too optimistic, he said.

“So far, about 52% of the companies reported results have missed analysts’ estimates,” the analyst said. “Most notably, earnings growth slowed down quite significantly in the 2H 11 or 4Q 2011. “

The market has been saved by expectations the U.S. Federal Reserve Board will launch another round of easing, he said, but this is not likely.

“China slowdown has begun, (and) I do not think the market has fully reflected this bad news yet.” He warned. “If (the) property bubble or LGFV (funding for local governments) bursts, we are in trouble.” End


Hong Kong Blue Chips: -276, -1.3%, to 20,609, 03-29-12, Hang Seng Index

Chinese Stocks in Hong Kong: -168, -1.6%, to 10,533, 03-29-12, HSCE Index

Shanghai Stocks: -1.4% to 2,252, 03-29-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -7.0, 401.5, 03-28-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong opened lower due to pessimism about the U.S. economic recovery and fell below resistance at the 250 day moving average as investors dumped Chinese private companies. Losses retreated in weak trading, but Hong Kong continued its two-week slide. Privately owned United Labs (ULIHY) sank 6.5% after FY11 profit plunged 85%. KGI Research

Trade Commission-FREE with Tradier Brokerage

Quotable: "For support, the first support would be 250 DMA (20,753), while next support would be seen at March low of 20,552." KGI Asia. 3-29-12

Chinese Company to Watch: "EMPEROR WATCH & JEWELLERY (887, HK) is mainly engaged in the sales of luxurious branded watches.... the Group’s mainland business development. The Group planned to expand its mainland network to tier-2 and tier-3 cities with mainly jewelry shops, and may become the Group’s profit driver." Kingston Financial. 3=29=12

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.

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 necessarily 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.

Market Movers

Sponsored Financial Content