Weekly Report, April 1, 2011: China Rally Rolls On

Gene Linn  |

Hong Kong surged to another strong gain this week, with Chinese banks doing most of the heavy lifting. These banks and Chinese commodity producers will probably lead market advances into April and the second quarter, Eric Yuen, head of research at Guoco Capital, told the Weekly Report.

After last week’s strong rise, the blue-chip Hang Seng Index jumped 2.8 % this week, 652 points, to 23,802. The index of Chinese companies gained more: 3.7%, 476 points, to 13,452.

Chinese stocks, especially banks, led the way as they did for the whole month of March. Yuen pointed out that blue chips were basically flat for the month while the Chinese company index gained about 6%. Banks leapt higher after big Chinese lenders reported better-than-expected results the last two weeks of March.

In April, Yuen said, Hang Seng gains will probably be capped at about 24,000 by uncertainty over the U.S. economy, European debt and Chinese inflation. But Mainland banks are likely to continue to surge. “Chinese banks rose an average of 10% in March, but valuation of the sector is still far below historical levels,” Yuen said.

Mainland commodity producers will cash in on rising basic materials prices as Japan’s massive rebuilding effort after the devastation of last month’s earthquake and tsunami increases demand . Among the companies Yuen likes are producers of coal, upstream oil companies and copper makers such as Jiangxi Copper.  End

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Hong Kong Blue Chips: +274, +1.2%, to 23,802, 04-01-11, Heng Seng Index

Chinese Stocks in Hong Kong: +136, +1.0% to 13,451, 04-01-11, HSCE Index

Chinese Stocks in the U.S.: +2.5 to 450.0, 03-31-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips closed at the day's high in robust turnover to carry the two-week-long rally into April and the second quarter. Gains came even though China's Purchasing Manager Index rise was less than forecast.  Big Chinese banks continued to lift the market: ICBC (1398) +1.5%. China oil producers rose sharply: CNOOC (0883) +4.6%. KGI Research

Quotable: "China’s economic data including the PMI and exports showed corrections in the first 2 months of the year, leading to concerns over downside risks. The soon-to-be released Mar economic data will probably clear some of the clouds. Based on the latest data, we believe downside risks are limited. GDP in 1Q11 is estimated to grow 9.7% YoY, only slightly lower than the growth of 9.8% reported in 4Q10." BOCOM International. 3-31-2011

Company to Watch: Sinotruck (3808) "The Company primarily specialise in the research, development and manufacturing of heavy duty trucks and related key parts.... Impressive FY2010 results: Full year net profit surged 76.9% to RMB1.48bn, mainly due to higher trucks sales with average selling price increased." KGI Research. 3-31-2011

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