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

Gene Linn  |

China 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.

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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


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

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