Volatility, Uncertainty Reign over China Stocks

Gene Linn  |

Volatility will reign over China stocks this week, according to Core Pacific Yamaichi head of research Castor Pang, due to uncertainty about European debt and the U.S. economy.

European finance ministers’ lack of agreement on a plan to tackle the region’s debt crisis on Friday was a big factor driving the Hang Seng Index down 2.7% Monday. The index of Chinese companies sank 3.7%. A rise in Hong Kong mortgage rates and drop in Mainland markets also contributed.

In addition, investors are unsure if the U.S. Federal Reserve Board will act to stimulate the economy at its meeting on Wednesday.

Pang forecast the Hang Seng will swing wildly between 18,800 and 20,200 this week. The Index tested the low end of that range Monday, closing at 18,918.

“The European markets are not stable, and that makes investors more and more risk averse,” Pang told Equities. “Maybe only utility stocks will gain and others will retreat.”

Chinese utilities seen as solid defensive stocks with good dividends mainly include telecoms, Pang said. The big three are China Mobile (CHL), China Telecom (CHA) and China Unicom (CHU).

However, Pang said China’s independent power producers (IPPs) are not attractive buys now. China’s falling purchasing managers index shows a weakness in manufacturing that will restrict electricity demand, he said. Also, high coal prices will cut into IPPs’ profits. End

DAILY FIX -- Wave of Bad News Hits China Kong Stocks

Hong Kong Blue Chips: -537, -2.8%, to 18,918, 09-19-11, Hang Seng Index

Chinese Stocks in Hong Kong: -382, -3.7% to 9,867, 09-19-11, HSCE Index

Shanghai Stocks: -1.8%, 2,438, 09-19-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -0.9 to 392.5. 09-16-2011, Bank of New York Mellon, ADR Index-China

Insight: A wave of bad news drove Hong Kong stocks lower Monday. Faiure of European finance ministers to tackle the region's debt crisis was one big factor, along with a rise in Hong Kong mortgage rates and a drop on Mainland markets. Chinese home appliance makers plunged: Haier (HRELY) tumbled 16.2%. Cement producer Anhui Conch (AHCHY) plummetted 12%. KGI Research

Quotable: "(We) believed that the trough formed last Wednesday was not the bottom of this correction. We might have the chance to see the level at 18,200 later." Core Pacific Yamaichi. 9-19-2011

Chinese Company to Watch: "China Shenhua announced that its commercial coal production increased 20.3% YoY to 23.7m tonnes in Aug while coal sales jumped 21.9% to 30.6m tonnes.... The parent will soon inject its coal power assets into the Company which could further boost its earnings." BOCOM International. 9-19-2011

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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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