Possible Fed Tightening Accelerates China Stocks Retreat

Gene Linn |

Still healthy? The three-week China stock retreat, which some investors have been calling healthy and natural, seemed to get a bit panicky Thursday.

Hong Kong’s Hang Seng Index fell through support at the 50-day moving average to drop 1.7% to 22,907 in heavier turnover. The index of Chinese companies sank 2.2% to 11,426. The sizeable declines added to a pullback that started after the Hang Seng hit a 21-month high on January 30.

Investors were spooked Thursday by sharp declines in U.S. and Chinese markets and by indications the U.S. Federal Reserve Board may cut back easy money policies, thereby reducing the flow of foreign funds into the Hong Kong market, said Castor Pang, head of research at Core Pacific Yamaichi. He also told Equities that talk by Chinese authorities about holding down rising property prices hurt property companies and banks.

However, Pang said the improving Chinese economy would support the market. He stated: “I think investors took an excuse to take profits. We had a rational pullback after markets have gone up a lot lately, especially in the U.S. and A-shares in China.”

Investors are waiting for the market to stabilize to get back in the buying mood, he said. That could be at the 22,800 level, according to Pang, and if not there, then at 22,000.

He likes the property sector as a possible leader of a rebound, saying there probably won’t be much tightening of the sector in the first half of the year. China Overseas Land (CAOVY) and China Resources Land (CRHKY), are quality companies whose prices have dropped to an attractive level, Pang said. End

DAILY FIX

Hong Kong Blue Chips: -401, -1.7%, to 22,907, 2-21-13, Hang Seng Index

Chinese Stocks in Hong Kong: -257, -2.2%, to 11,426, 2-21-13, HSCE Index

Shanghai Stocks: -71, -3.0%, to 2,326, 2-21-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: -4.6, 381.1, 2-20-13, Bank of New York Mellon, ADR Index-China

Insight: Prospects for a possible pullback in the U.S. central bank's easy money policies drove the Hong Kong market sharply lower in heavier turnover. Gold producers fell along with the international gold price: Zijin Mining (ZIJMY) sank more than 3%. KGI Research

Quotable: "Though (the) HK market saw a rebound yesterday (Wednesday), it did not help the market to regain the momentum." Core Pacific Yamaichi. 2-21-13

Chinese Company to Watch: China consumer sector "We recommend buying Uni-President China (UPCHY) and Hengan (1044, HK) ahead of results on better-than-expected margin prospects,..." BOCOM International. 2-21-13

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.

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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