'Real' China Stocks Weigh on Market

Gene Linn |

hong kong fog“Real” China stocks are dragging down Chinese companies listed in the U.S. and Hong Kong and may be signaling tough times ahead.

We’re talking about A-shares sold on exchanges in China, in Shanghai and Shenzhen. Usually in this column we don’t discuss them much because most foreign investors cannot buy them.

They are denominated in the Chinese renminbi, which is not convertible, and available only to the big boys under the Qualified Foreign Institutional Investors program.

In addition, the drama surrounding the European debt crisis and struggling U.S. economy usually demand most of the attention of global markets.

But with the bellwether Shanghai Composite Index sinking to near three-year lows, A-shares influence China-related stocks bought and sold on U.S., Hong Kong and other foreign markets.

And that’s not good. Hong Kong broker Core Pacific Yamaichi said in its Wednesday website commentary that the “A-share market remains the major overhang for Hong Kong stock market.”

Benny Wong, head of research at BOCOM International, asserted Wednesday in an email to Equities that the A-share slump bodes ill for the Hong Kong market. (BOCOM International is the brokerage arm of the Bank of Communications, a major Chinese bank.)

China’s economic data are not reliable, Wong said, and the stock market is “a better mirror of the real situation.” He said the A-share decline indicates three things:

*Limited loosening of tight credit policies because the government is still debating whether the massive stimulus package launched in 2008 was the right move.

*The economy is doing badly with no sign of turnaround in early 2012.

*China’s economy will not have a soft landing, but won’t have a hard landing, either. That means the slowdown in growth will be significant, but there will be no recession.

Given this gloomy outlook, Wong said, “I cannot think of one sector worth going into except utilities and gold.” Wong holds out some hope for investors because he said that although the first half of 2012 will be bad, there may be a recovery in the second half of the year with some opportunities opening up. End

DAILY FIX

Hong Kong Blue Chips: -93, -0.5%, to 18,354, 12-14-11, Hang Seng Index

Chinese Stocks in Hong Kong: -69, -0.7% to 9,888, 12-14-11, HSCE Index

Shanghai Stocks: -0.9%, 2,229, 12-14-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -3.6, to 361.7, 12-13-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong fell on weak volume after the U.S. market reversed early gains when the Federal Reserve Board signaled it would not take measures to stimulate the U.S. economy. The continuing slump in Mainland markets also weighed on Hong Kong. KGI Research

Quotable: "Real estate investment growth fell, from 31.1% in October to 29.9% YTD in November, while investment in non-ferrous metals, electrical machinery & equipment, telecommunications and water irrigation systems continued to record robust growth." CCB International. 12-12-11

Chinese Company to Watch: TRINITY (0891.HK) "Benefit(s) from the strong performance of the men fashion retail business in both HK and China. Share price dropped to recent low level." KGI Asia. 12-14-11

Brokerages and analysts cited 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

Companies

Symbol Name Price Change % Volume
CERC Cerecor Inc. 1.52 -0.23 -13.14 1,046,931

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