Profit Taking Slows China Rally

Gene Linn  |

After celebrating the New Year with a massive gain in the first two days, China stocks endured a mild hangover Friday. But a strong flow of funds into the market should provide a quick cure.

The Hang Seng Index in Hong Kong slipped 0.3% to 23,331 following a steep gain of 2.9% in the first day of trading in 2013 and 3.3% in the first two days. The index of Chinese companies, after even larger rises the last two days, dropped 0.4% to 11,937.

A short-term pullback is not a surprise with investors taking profits from recent big gains, said Ben Kwong, chief operating officer at KGI Asia. However, he told Equities in an email that an increase in market turnover reflects strong liquidity that will support the recent rally.

“Since major central banks will still keep QE (quantitative easing) measures, together with funds switching from (the) bond market to (the) equity market, any correction in this type of liquidity driven market should not be too deep at this stage,” Kwong said.

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With ample liquidity in the market, funds will continue to spread to second and third tier lagging China plays, he said. That includes basic materials companies related to the rebound in Chinese economic growth, according to Kwong. Solar energy companies will get a boost from Warren Buffett’s purchase of a large solar energy project in California. End


Hong Kong Blue Chips: -68, -0.3%, to 23,331, 1-4-13, Hang Seng Index

Chinese Stocks in Hong Kong: -50, -0.4%, to 11,937, 1-4-13, HSCE Index

Shanghai Stocks: +8, +0.4% to 2,277, 1-4-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: +10.3, 413.5, 1-04-13, Bank of New York Mellon, ADR Index-China - closed by storm

Insight: Hong Kong blue chips lost more than 200 points after opening lower, but losses narrowed to 78 points at the close. Solar energy plays soared following Warren Buffett's purchase of a large solar project in Califorinia: Solargiga (0757, HK) +19.2%. Macau gambling stocks posted strong gains: Meico ((0200, HK) +4.7%. KGI Research

Quotable: "A-shares will resume today and may provide some direction for the Hong Kong market." BOCOM International. 1-4-13

Chinese Company to Watch: "In our HK retail universe, Sa Sa (178 HK, Buy) and Lifestyle (1212 HK, Buy) remain our key picks." BOCOM International. 01-04-13

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

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