Time to Accumulate China Stocks?

Gene Linn  |

“Time to accumulate again,” states the daily market analysis on China stocks in Hong Kong from Haitong Securities. Battered by news from overseas and at home, the Hong Kong market is starting to look attractive to some analysts.

For now, investors show precious little interest in buying. China stocks in Hong Kong have been in free-fall the last three trading days and Tuesday’s plunge was the steepest. The blue-chip Hang Seng Index sank 5.7%, and the index of Chinese companies, the so-called H-shares, plummeted 6.2%.

On Monday, Hong Kong was one of the first markets to respond to the cut in the U.S. credit-rating, dropping 2.2%. Then Tuesday the market had to react to panic selling on Wall Street as the U.S. responded to the downgrade.

On top of scary news from U.S. markets, which has become almost a daily ritual, China stocks in Hong Kong took a hit Tuesday from China. Beijing announced that inflation edged up to a 37-month high of 6.5% in July while growth in industrial output fell 1.1 percentage points to 14%. This presents investors with the worst of both worlds – higher inflation and lower growth. The once common hope that falling inflation would allow China to ease economic tightening this summer is gone.

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However, China stocks have fallen so much that some Hong Kong observers think it’s time to begin to buy. Haitong Securities noted that the Hang Seng Index is at the level where it has bottomed in previous downturns. BOCOM International pointed out the Index is trading at less than 10 times the forward FY 2011 P/E. It was at that level less than a month before rebounding from the devastating Asian Financial Crisis of the late 1990s.

There’s also the fact that although China faces serious economic problems, its woes are more manageable than those of the U.S. and Europe. Haitong stated: “While continued downgrade of public debt has led to panic selling in the stock market, we believe the fundamentals of H-shares remain robust. We suggest investors to start accumulating shares and buy the dips.” End

DAILY FIX -- Wall Street Plunge Slams Hong Kong

Hong Kong Blue Chips: -1,160, -5.7%, to 19,331, 08-09-11, Hang Seng Index

Chinese Stocks in Hong Kong: -687, -6.2% to 10,456, 08-09-11, HSCE Index

Shanghai Stocks: -0.03%, 2,525, 08-09-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -29.4 to 373.7, 08-08-2011, Bank of New York Mellon, ADR Index-China

Insight: The plunge on Wall Street led to a steep decline in Hong Kong in some of the heaviest trading of the year. KGI Research

Quotable: "As we said on Monday, the most important parameter to observe at this stage is the US bond yield. If the bond market can withhold the shock of downgrade, stock market stands a chance to rebound. As expected US Treasuries remain as a safe haven." BOCOM International. 8-9-2011

Chinese Company to Watch: "SINOPEC CORP (00386). Oil price decline favor sinopec (an oil refinery company)." KGI Asia. 8-8-2011.

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

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