Struggling A-shares Drag Down China Stocks

Gene Linn |

Struggling A-shares Drag Down China StocksGloom over the struggling Chinese A-share market on Tuesday overcame optimism about the U.S.’s ability to avoid its fiscal cliff, pressuring Chinese stocks to finish with a loss.

The Hang Seng Index in Hong Kong opened higher following big gains on Wall Street as political leaders in the U.S. sounded like they would cooperate to avoid large tax increases and spending cuts set for next year. But the gains turned around when the Shanghai Composite Index sank near the critical 2,000 support level, closing at 2,008.

Mainland A-shares aren’t available to most foreign investors, but their movements often affect China stocks in Hong Kong and abroad.

The Hang Seng slipped 0.2% to 21,228 in weak turnover, and the index of Chinese companies fell 0.6% to 10,227.

Investor sentiment is “quite cautious” because of the tanking A-share market, said Steven Leung, director of institutional sales at UOB Kay Hian. And A-shares are undercut by worry that aggressive fund-raising will hurt stock prices, he told Equities. Investors also fret about weak Chinese economic growth, even though the market consensus is the economy bottomed out in the third quarter.

Yet another drag on A-shares is investor caution preceding an important economic policy meeting in China in mid-December, according to Leung.

In the short term most gains will come from companies the benefit from company-specific good news, he said. For example, China Unicom (CHU) is rallying because of strong October subscriber numbers. End

DAILY FIX

Hong Kong Blue Chips: -34, -0.2, to 21,228, 11-20-12, Hang Seng Index

Chinese Stocks in Hong Kong: -67, -0.6%, to 10,227, 11-20-12, HSCE Index

Shanghai Stocks: -8, -0.4% to 2,009, 11-20-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +1.6, 368.7, 11-19-12, Bank of New York Mellon, ADR Index-China - closed by storm

Insight: Hong Kong blue chips opened 218 points higher following big gains in the U.S. but closed with a loss due to weakness on the Mainland A-share market. Chinese properties were mixed after news that October property prices rebounded: Agile (AGPYY) +1.4%. KGI Research

Quotable: "We recommend investors to accumulate H shares as the HSCEI is currently trading at undemanding 2012 PER of 8.5x." Guoco Capital. 11-20-12

Chinese Company to Watch: CITIC Pacific (CTPCY) "Being the worst performing HSI constituent year-to-date (down 29.1% versus a 15.3% surge for Hang Seng Index year-to-date) with the lowest price-to-book ratio (0.4x 2013 PBR) among the blue chips, CITIC Pacific is a strong candidate for laggard chasing." Guoco Capital. 11-20-12

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

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Companies

Symbol Name Price Change % Volume
ESBK Elmira Savings Bank NY (The) 19.43 -0.09 -0.46 449

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