Tepid Rally Set to Continue for China Stocks

Gene Linn  |

A nice bump Friday allowed China stocks to finish the week with gains, but the hoped-for big rally remained stunted. Some investors thought Mainland markets would re-open this week after a long holiday with big gains, fueling a solid rally in China stocks in Hong Kong and abroad. They reasoned that finally setting a date for the key Party Congress, November 8, would spur hopes for major steps to reform and stimulate the weakening Chinese economy.

Didn’t happen. Chinese leaders took no dramatic steps this week, and the Shanghai Composite Index rose a modest 0.9% for the week. Other major themes included: good performance by Chinese banks late in the week; a stronger performance in Hong Kong by the index of Chinese companies, H-shares, than by the blue-chip Hang Seng Index; and increased turnover.

The Hang Seng rose 0.6% Friday and for the week to 21,136, and the index of Chinese companies climbed 1.1% Friday and 3.8% for the week to 10,345.

“I think the rally will continue next week, mainly on signs China is launching initiatives to prevent the economy from falling into a recession,” said Francis Lun, managing director at Lyncean Securities.

Initiatives included modest-but-significant steps like state purchases of stock in banking giant ICBC (FXI) and a boost in spending on the rail system, he told Equities.

Lun likes the big banks, including ICBC, and rail plays like China Railway Construction (CWYCY) and China Railway (CRWOY). End

Hong Kong Blue Chips: +137, +0.6%, to 21,136, 10-12-12, Hang Seng Index

Chinese Stocks in Hong Kong: +114, +1.1%, to 10,345, 10-12-12, HSCE Index

Shanghai Stocks: +2, +0.1% to 2,105, 10-12-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +5.6, 381.2, 10-11-12, Bank of New York Mellon, ADR Index-China

Insight: Good gains by Chinese banks helped Hong Kong blue chips rise in moderate turnover. Minsheng Bank (CMAKY) climbed 2.8%. KGI Research

Quotable: "Market will likely demonstrate a range trade pattern." BOCOM International. 10-12-12.

Chinese Company to Watch: Dongfeng Motor (DNFGY) "Maintain BUY given the attractive valuation and still-solid long-term outlook." UOB Kay Hian. 10-11-12

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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