Rally in China Stocks Falter

Gene Linn  |

China stocks retreated Thursday from their liquidity-driven rally as the discouraging state of the Chinese economy and stock markets overcame massive monetary easing by overseas central banks.

The Hang Seng Index in Hong Kong fell 1.2% to 20,591 and turnover also slipped. The index of Chinese companies sank 1.4% to 9,708.

The Hang Seng soared 8.9% from September 5 to September 19 on the strength of announcements that the U.S., Europe and Japan would launch new easy money policies. But news about Chinese manufacturing, exports and other economic areas has been consistently dour, and Chinese stocks markets have fallen sharply. On Thursday the Shanghai Composite Index plunged 2.1% to 2,025.

Still, the flood of new liquidity will help China stocks in the near term, according to Ben Kwong, chief operating officer at KGI Asia. The increased flow of cash and end-of-quarter window dressing will push the Hang Seng to test 21,000, he told Equities in an email.

But he doesn’t expect the monetary easing to do much for the struggling global economy.

“We believe that some further upside (in stocks) will be seen but there is unlikely to be a very substantial rally,” he said.

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The main beneficiaries of increased liquidity will be gold producers and retailers, Kwong said. But since the big names in these sectors have already seen big increases, he recommends investors take a look at the lagging industrial and shipping sectors. Not only do they boast low valuations, but they should gain from expected Chinese efforts to boost exports. End


Hong Kong Blue Chips: -251, -1.2%, to 20,591, 09-20-12, Hang Seng Index

Chinese Stocks in Hong Kong: -141, -1.4, to 9,708, 09-20-12, HSCE Index

Shanghai Stocks: -43, -2.1% to 2,025, 09-20-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +5.4, 379.5, 09-19-12, Bank of New York Mellon, ADR Index-China

Insight: After a strong two-week rally, Hong Kong lost ground Thursday due to a sharp drop on Mainland markets. A fall in the price of oil hurt Chinese producers: CNOOC (CEO) -3.5%. KGI Research

Quotable: "Market will likely consolidate for the rest of the week." BOCOM International. 9-20-12

Chinese Company to Watch: "Having a 25.6% increase against previous year in net profit to RMB 208.445 billion in 2011, ICBC defended its position as the world’s most profitable bank." KGI Asia. 9-19-12

HSBC (HBC) is a leading global bank. QE3 should benefit international financial stocks, including HSBC." Guoco Capital. 9-19-12

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

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