Slowdown in Manufacturing Hits China Stocks

Gene Linn  |

China stocks sank again Wednesday after a report showed Chinese manufacturing slowing sharply in November. The slowdown added to continuing worries about the spreading European debt crisis. But one analyst insisted investors should not completely retreat to defensive stocks.

The HSBC preliminary manufacturing purchasing managers index for China plunged to 48.0 from a final reading of 51.0 in October. The decline could rekindle concerns China faces a hard landing in its fight against inflation, and may accelerate Chinese moves to loosen monetary policy to boost growth.

On Wednesday the news helped drive Hong Kong’s Hang Seng Index down 2.1% to 17,864. The index of Chinese companies sank 2.8% to 9,476. Turnover was weak. Since the end of a strong rally on October 28 the Hang Seng has tumbled 2,155 points, 10.8%.

While the news and market results are sobering, investors should not forget the positive trend of Chinese credit loosening, according to Ben Kwong, chief operating officer at KGI Asia. He told Equities in an email that he expects a flow of encouraging news from China as leaders implement new policies to promote growth.

“We do not expect to see much down side from the major support level at 18,000 in the near term,” he said.

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Kwong acknowledged that In the current weak market defensive stocks like telecoms have a lower downside risk. But he said that because the market has already fallen more than 2,000 points after its October rally, other sectors also offer good risk-adjusted returns. He specifically pointed to oil and other commodity stocks and insurance companies. End


Hong Kong Blue Chips: -387, -2.1%, to 17,864, 11-23-11, Hang Seng Index

Chinese Stocks in Hong Kong: -269, -2.8% to 9,476, 11-23-11, HSCE Index

Shanghai Stocks: -0.7%, 2,395, 11-23-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +2.5, to 367.5, 11-22-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong stocks tumbled after the HSBC preliminary manufacturing PMI fell sharply to 48.0, indicating slowing growth in China. Resources plays posted steep losses: Jiangxi Copper (JIXAY) -5.0%. KGI Research

Quotable: "We recommend short-term investors to accumulate large-cap stocks such as China Overseas Land (CAOVY), Anhui Conch (AHCHY), China Construction Bank (CICHY), Jiangxi Copper (JIXAY) and Dongfeng Motor (DNFGY) if the index dips below 18,000." Guoco Capital. 11-23-11

Chinese Company to Watch: "CHINA TAIPING (CTIHY) Mainland stock market turned stabilized which will increase investment return of insurance company. Share price near two year low." KGI Asia. 11-23-11

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