'Time Is Right' for China Stocks Profit-Taking?

Gene Linn |

Hong KongChina stocks may be getting more vulnerable to a mild pullback after a long rally.

“The time is right for profit-taking,” said Francis Lun, managing director at Lyncean Securities. “We’re at a 20-month high.”

The Hang Seng Index in Hong Kong inched back on Tuesday from Monday’s 20-month best close, slipping 0.07% to 23,655. The index of Chinese companies edged 0.2% lower to 12,078.

After surging 6.9% from December 4 to January 2, the Hang Seng added just 1.5% through the 29th. Momentum is slowing despite encouraging economic growth in China and a strong rebound on Chinese A-share markets. Lun told Equities he thinks the Hang Seng will retreat to about 23,000 in the short term, a drop of 2.8%.

A slightly steeper drop might be in order if the Hang Seng falls below its 10-day moving average, a level it has topped by a diminishing margin since December 5. The index closed Tuesday 86 points over the 10-day moving average. However, a stronger economy and stock market on the Mainland should cushion any fall.

If there is a pull back, Lun said it would be led by Hong Kong properties, which may lose recent gains due to a drop in mortgage applications. But the market as a whole might be vulnerable. “Generally the market is overbought,” Lun said. End

DAILY FIX

Hong Kong Blue Chips: -17, -0.07%, to 23,655, 1-29-13, Hang Seng Index

Chinese Stocks in Hong Kong: -22, -0.2%, to 12,078, 1-29-13, HSCE Index

Shanghai Stocks: +12, +0.5% to 2,359, 1-29-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: +0.9, 399.6, 1-28-13, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong stocks ended marginally lower after trading in a narrow range. Chinese banks were weak after ICBC (IDCBY) fell 2.2% due to a share placement by Goldman Sachs. Macau gambling stocks won. The Sands China (SCHYY) rose 1.6%. KGI Research

Quotable: "We believe Chinese banks and insurers will continue to outperform the market in near term." Guoco Capital. 1-29-13

Chinese Company to Watch: "Minsheng (Bank, CMAKY) is trading at 6.5x 2013F P/E and lower than the peer average of 7.1x. As the upside potential is 17.8%, Minsheng deserves a re-rating to BUY." Core Pacific Yamaichi. 1-29-12

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

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
OHAI OHA Investment Corporation 3.17 0.24 8.19 25,164

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