Short-term Resistance Level Still Blocks China Stocks

Gene Linn |

China stocks banged against key short-term resistance again Thursday and retreated again, but numerous analysts still think a breakthrough is around the corner.

The Hang Seng Index in Hong Kong challenged resistance at 23,700 after China’s preliminary January PMI figure hit a two-year high, but fell back to a 0.2% loss, ending at 23,599. The Hang Seng has had its sights set on 23,700 since a sharp rise January 2 took it to 23,312. The index of Chinese companies dropped 0.6% Thursday to 12,096.

But Castor Pang, head of research at Core Pacific Yamaichi, is among the chorus of observers who say it’s only a matter of time before 23,700 is in the rearview mirror. The hold-up now, Pang told Equities, is that the Mainland’s A-share market is consolidating after the Shanghai Composite Index rallied to rise above 2,300. The index slipped 0.8% Thursday to 2,303.

“When A-shares do better it will help offset selling pressure from profit-taking,” Pang said. “We have a chance to reach 24,000 in the next two weeks and then consolidate again.”

Chinese financials will help lead the march to 24,000, he said. “China Life (LFC) is the most attractive financial stock, especially because of strong premiums and because it continues to benefit from new government policies,” Pang said. The company’s investment income will also rise with the A-share market.

Hong Kong properties will be strong, too, following the local government’s decision to forego measures to hold down property prices. Pang likes the valuation of SHK Properties (SUHJY), especially compared to that of another property giant, Cheung Kong (CHEUY).

 

DAILY FIX

Hong Kong Blue Chips: -36, -0.2%, to 23,599, 1-24-13, Hang Seng Index

Chinese Stocks in Hong Kong: -71, -0.6%, to 12,096, 1-24-13, HSCE Index

Shanghai Stocks: -18, -0.8% to 2,303 1-24-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: -1.9, 405.2, 1-23-13, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips opened down 50 points but rose to challenge resisitance at 23,700 after China's PMI number came in at a two-year high. However, stocks could not hold the higher ground and ended slightly lower. After Apple shares disappointed in the U.S., suppliers were mixed: Sunny Optical (2382, HK) +4%. KGI Research

Quotable: "Fund will likely flow into 2nd and 3rd liner stocks." BOCOM International. 1-24-13

Chinese Company to Watch: "We apply a PE multiple of 18.8x for the gas utilities industry and value Tian Lun Gas on our 2013 earnings estimate, implying a TP of HK$7.0, or 53% upside from current levels. BUY." BOCOM International. 1-24-13

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

Companies

Symbol Name Price Change % Volume
LFC China Life Insurance Company Limited American Depo 13.47 -0.28 -2.04 782,547
STI.WS.A SunTrust Banks Inc. Class A Warrant (Expiring Dece 11.75 0.07 0.60 2,300

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