Slowing Economic Growth Adds to China Stock Woes

The growing threat of default by Greece on its debt is the big factor driving China stocks sharply lower (along with other stocks around the world). Hong Kong’s Hang Seng Index fell 3.4% Tuesday and has plummeted 7.6% in the last two days.

A default by Greece looms so large, it’s almost easy to forget that there are China factors at work also adding to selling pressure.

“Another fear in the market is that some investors believe China now facing a great risk of hard landing,” BOCOM International said in its daily market report Tuesday.

That fear is indirectly linked to worries about Greek default because default would damage the world economy and in the process lower demand for Chinese exports. But BOCOM pointed out that the significance of exports in China’s economy has been shrinking. The brokerage, which is an arm of China’s Bank of Communications, said that in a “worst-case scenario” for a drop in exports, China would still manage a growth rate of 7.5% in 2012. That is well below the current figure of more than 9%, but “still within the target range.”

Another potential trouble spot for China is that some businessmen have recently fled because they are unable to repay their loans. Some investors worry China faces a financial crisis because a number of small and medium-sized enterprises will default on their loans.

BOCOM acknowledged the problem may get worse, but said “it is hard to believe that the situation will evolve to another financial crisis.” It noted that SME do not constitute a major part of the Chinese economy, an economy dominated by mammoth state enterprises. And China can take steps to deal with the problem, such as adopting policies to help specific industries.

In BOCOM’s eyes the problems faced by China’s economy are overblown by worried investors. But even if the brokerage is correct, it probably won’t make much difference as long as the European debt crisis continues to deepen.

BOCOM said, “… a near term rebound is possible but we remain cautious on the medium term outlook.” End

DAILY FIX — Another Big Drop; Hong Kong Market to Close Wednesday

Hong Kong Blue Chips: -572, -3.4%, to 16,250, 10-04-11, Hang Seng Index

Chinese Stocks in Hong Kong: -306, -3.6% to 8,102, 10-04-11, HSCE Index

Shanghai Stocks: Closed for holiday 2,359, 10-04-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -11.1 to 338.8, 10-03-11, Bank of New York Mellon, ADR Index-China

Insight: The prospect of a default by Greece and of slower Chinese economic growth again forced prices down sharply in Hong Kong. Mainland banks continued to slide: CCB (CICHY) fell more than 3%. One gainer was Smartone (STTFY) which rose 5.3% on talk Apple would soon launch iPhone5. KGI Research

Quotable: “Hong Kong market will continue to fall in Q4, thus investors should stay cautious and avoid heavy operation.” CFSG. 9-30-2011

Chinese Company to Watch:  Sinopec. “According to our earnings estimate, the counter is presently trading at undemanding 2011 PER of 7.1x representing a deep discount to the sector average of 9x. We see limited downside risk on share price.” Guoco Capital. 10-3-2011

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