China stocks in Hong Kong will continue to struggle in the coming weeks as investors shy away from risk, according to Ben Kwong, chief operating officer at KGI Asia. But he said there are still buying opportunities when the blue-chip Hang Seng Index slips below 22,000, as it has now.
“Risk appetite is low,” Kwong told Equities. “There’s still concern about European debt, and … there’s worry the U.S. could get a rating downgrade. Besides that, the shape of the U.S. economy is really bad.”
All the scary overseas developments have pushed upbeat Hong Kong corporate results into the background. This has put investors in a “trading mode,” Kwong said, as they buy and sell stocks according to the news of the day. An example might be the 6.7% surge Thursday by ENN Energy (2888) on news natural gas talks between China and Russia had restarted.
Two things could turn the market around toward sustained growth, according to Kwong. One is for the U.S. Federal Reserve to launch an additional easy money policy. The first two programs, QE1 and QE2, helped attract money to riskier investments.
The other possible market-changer is an easing of China’s tight money policy. But Kwong does not expect that to happen until Chinese authorities see signs of slowing inflation, probably not until the fourth quarter this year.
Meanwhile, Kwong said there is still some room for longer-term investors to pick up Chinese stocks. “If an investor has a lot of cash and low stock holdings he could buy when the Hang Seng gets below 22,000 because we expect it to reach 25,000 by the end of the year.” The possible downside is probably 21,000, Kwong said.
Big blue chips will probably lead the market higher later in the year, he said. He likes big oil and coal producers and some telecoms like China Mobile. END
DAILY FIX -- Risk aversion Weighs on Hong Kong Stocks
Hong Kong Blue Chips: -108, -0.5%, to 21,885, 08-04-11, Hang Seng Index
Chinese Stocks in Hong Kong: -120, -1.0% to 11,893, 08-04-11, HSCE Index
Shanghai Stocks: +0.2%, 2,684, 08-04-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -1.7 to 428.6, 08-03-2011, Bank of New York Mellon, ADR Index-China
Insight: A flight away from risk continued to push Hong Kong stocks down, although losses and turnover were lower than on Wednesday. Chinese insurers tumbled: PICC (2328) -11%. But rising gold prices helped gold producers. Lingbao Gold (3330) rose 5.6% after announcing a possible profit alert. KGI Research
Quotable: "News flow and sentiment will determine market direction in the near term." BOCOM International. 8-3-2011
Chinese Companies to Watch: "On 29 July, the Beijing municipal government announced a plan to scrap old cars through a subsidy scheme that runs from 1 August 2011 to 31 December 2012.... We believe owners that replace their cars mostly prefer high-end vehicles, which would be positive for carmakers such as Brilliance China Automotive Holdings (1114.HK, $10.46, BUY) and Dongfeng Motor Group (0489.HK, $14.70)." Haitong Securities. 8-3-2011
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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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