U.S. 'Fiscal Cliff' Spooks China Stocks

Gene Linn  |

Fear of heights continued to drive China stocks lower Friday.

Since the U.S. election Tuesday investors have grown queasy looking over the possible fiscal cliff of big tax increases and spending cuts in the U.S. A leap off the cliff (actually more of a steep slope) would hurt consumption in the U.S., which would be a big blow to the export sector in China and Hong Kong. Investors also seemed to get vertigo after a two-month rally pushed Hong Kong’s Hang Seng Index up 15.5% to year-high heights last Friday. Profit-taking ensued.

On Friday the Hang Seng fell 0.8% to 21,384, capping a 3.3% nosedive this week. The index of Chinese companies sank 0.7% Friday and 3.5% for the week to end at 10,455.

In the background things don’t look so scary. A drop in China’s inflation rate for October was one more sign of a possible rebound in the Chinese economy in the fourth quarter.

“For HK market, we are positive … on longer term as China economy is likely to be bottomed in 3Q12,” Ben Kwong, chief operating officer at KGI Asia, told Equities in an email.

He also noted that the U.S. central bank’s QE3 monetary loosening policy continues to push hot money into the Hong Kong market.

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For the short term, though, export-oriented stocks like Li & Fung (LFUGY) are suffering from the prospect of reduced U.S. consumer demand, Kwong said. And the market’s increased aversion to risk might spur selling pressure for commodity producers. End


Hong Kong Blue Chips: -183, -0.8, to 21,384, 11-09-12, Hang Seng Index

Chinese Stocks in Hong Kong: -72, -0.7%, to 10,455, 11-09-12, HSCE Index

Shanghai Stocks: -2, -0.1% to 2,069 11-09-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -5.9, 380.0, 11-08-12, Bank of New York Mellon, ADR Index-China - closed by storm

Insight: Worry that political gridlock would push the U.S. economy off a fiscal cliff helped push Hong Kong stocks lower. However, computer-maker Lenovo (LNVGY) soared 5.8% after third quarter results beat expectations. KGI Research

Quotable: "We maintain our year-end target for the Hang Seng Index at 22,500." Guoco Capital. 11-9-12

Chinese Company to Watch: Guangdong Investment (GGDVY) "Water supply business annual profit contribution exceeded HK$2bn and is expected to see steady growth. Hence, it is defensive. Dividend Payout Ratio Increase: Improved financial situation with its net debt dropped to HK$2bn or below. The low gearing enabled GDI to increase its dividend payout." KGI Asia. 11-9-12

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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