February 8 -- 12 Stampeding Ox Ends Strong
The Chinese Year of the Ox ended at a gallop on the way to a 60%-plus gain. But the Year of the Tiger beginning Sunday will likely start out cautiously.
The Hong Kong blue-chip Hang Seng Index closed the week up 3.1%, 608 points, to 20,269. The index for Chinese stocks rose 3.6%, 404 points, to 11,536.
Two factors drove gains this week, Ben Kwong, chief operating officer at KGI Asia, told the Weekly Roundup. One was optimism that other European nations would help Greece avoid a default on its debt. The other was a lower-than-expected result for Chinese consumer inflation in January, which eased worries China would further tighten monetary policy.
“After a sharp correction in recent weeks, there was a technical rebound,” Kwong said. “The Hang Seng went back above 20,000.” Previously battered sectors like resources and banks led the rebound.
But the first steps of the Year of the Tiger probably will be rather unsteady. “Sentiment has improved, but uncertainty overhangs the market,” Kwong said.
For one thing, Chinese markets will not provide any direction because they will be closed all week for the holiday. The Hong Kong stock exchange will close Monday and Tuesday. And the European debt crisis is far from over. There have been no concrete plans announced to rescue Greece, Kwong pointed out, and Spain and Portugal also have problems. In addition, the Chinese January inflation figures are less impressive than they appear because they are compared to January 2009, and the Chinese New Year holiday came in that month.
Investors will have to wait until after next week's holiday to see if Chinese authorities will actually ease back on economic tightening, Kwong said. Meanwhile, he said, there may be some profit-taking after this week's rebound. End
February 1 -- 5 European Fears Spook Hong KongAs if China-related stocks in Hong Kong didn’t have enough problems…. Bears have had a firm grip on the Hong Kong market since at least mid _January when worries over Chinese inflation and economic tightening intensified. The blue-chip Hang Seng Index slumped almost 9% from January 13 to Thursday this week. Then global markets, including Hong Kong, plummeted on Friday when fear mounted that Greece, Spain and Portugal might default on their debt.
Friday’s debacle pushed the Hang Seng 3.3% lower, well below the psychological 20,000 level. The index ended the week down 2.3%, 461 points, at 19,661. The index of Chinese companies fell 3.2%, 366 points, to 11,132.
Despite the Friday drama, Benny Wong, head of research at BOCOM International, told the Weekly Roundup that Hong Kong’s woes are part of a longer term trend. He has found that BOCOM clients have been taking money out of Hong Kong stocks since December. "In the long term they’re positive, but they see weakness on the six-month horizon," he said.
European debt worries add to that weakness by driving investors from the Euro to the U.S. dollar, Wong said. A stronger dollar helps unwind the carry trade that last year channeled a flood of money into Hong Kong stocks as U.S. investors fled low interest rates and a falling currency.
The dismal current environment is "ideal for value investors who want to hunt bargains, but not for short-term traders," Wong said. He is interested in resources plays that are not likely to suffer from inflation because their product’s prices will also rise. End
January 25 – 29 Tight Lending Blues
China as expected is leading the world in tightening loose money policies launched to cope with the global recession. If the effect on China-related stocks is a portent, other stock markets around the world should brace themselves.
Chinese bank lending tightening and fears of more to come drove Hong Kong's blue-chip Hang Seng Index down for the third week in a row. The Hang Seng dropped 604 points, 2.9%, to 20,122, briefly dipping below the critical psychological level of 20,000. The Hang Seng, which includes numerous big Chinese companies, has mostly gone straight down in the last three weeks, losing 2,175 points. The index of Chinese companies lost 478 points this week, 4.0%, to 11,498.
Some big state-owned Chinese banks actually stopped lending this week in major cities, Belle Liang, head of research at Core Pacific Yamaichi, told the Weekly Roundup. “We called banks in Shanghai, and they said they stopped approving new loans on Tuesday or Wednesday,” she said. Big banks in other key cities apparently did the same.
Chinese lenders had also cut interest discounts for first-time home buyers, Liang said, as China struggles to avoid a property market bubble. In addition, large fund raising activities by banks like Bank of China and China Merchants Bank are draining liquidity from the market.
Still, Liang and some other analysts take a sanguine view of the market, expecting a solid rebound in coming months. But she doesn't expect a lot of activity before the long Chinese New Year holiday in China starting February 14. End
January 18 -- 22 Another Body Blow
After a tightening in Chinese bank lending staggered Hong Kong stocks last week, prospects for Mainland inflation sent the market reeling again this week. Investors, however, are still on their feet.
The blue-chip Hang Seng Index plunged 4.3% this week, 928 points, to 20,726. And that was after the index recovered almost 500 points from its low Friday morning in heavy turnover. The index for Chinese companies sank 3.1%, 381 points, to 11,976 this week.
A signal on Thursday that inflation was growing in China piled onto existing concerns about Mainland bank loan tightening that had pushed the Hang Seng down 2.9% last week. The index includes numerous large Chinese companies. The index of Chinese companies had dropped 5.2%.
Worries about continued tightening could hurt investor sentiment in the short term, Nicholas Yeo, head of China and Hong Kong equities at Aberdeen Asset Management, told the Weekly Roundup. However, he stated the slow down in lending “is not a bad thing, all in all.”
China needed to restrain the rapid rise of property prices in its main urban markets, Yeo said. He also noted that China has shown in the past it makes this type of adjustment gradually, not all at once. This may help stabilize stock prices.
Economic news the last two weeks has buffeted Chinese banks, but they showed resilience by rebounding on Tuesday and Friday. Aberdeen Asset Management does not react to short-term market developments, Yeo said. Instead, the company will stick to its long-run focus on companies with a solid cash flow, such as supermarkets. End.
JANUARY 11 - 15, 2010 PUNCH IN THE GUT
After bracing nervously for the first body blow from China’s looming attempt to tighten flabby monetary policy, the Hong Kong market and took a punch in the gut on Wednesday.
Beijing had launched an orgy of bank lending in 2009 to combat a serious credit crunch, and the flood of funds helped boost stocks on the Mainland and in Hong Kong. Then this week authorities tightened Chinese banks’ required rate of return in the first of an expected series of moves to tighten credit.
The blue chip Hang Seng Index plunged 2.6% Wednesday, and the index of Chinese stocks sank 3.7%. Banks and properties bore the brunt of the decline. For the week, the Hang Seng tumbled 2.9%, 643 points, to 21,654. Chinese stocks plummeted 5.2%, 678 points, to 12,357.
China had to act to head off a growing property market bubble and overheated economic growth, Howard Gorges, vice chairman at South China Brokerage, told the Weekly Roundup. Wednesday’s tightening was not drastic, but he said, “There are signs there are more measures coming. We’re early in the process.”
However, the news isn’t all bad. “It’s good that China is slowing bank lending,” Gorges said. “There was twice as much lending in 2009 as in 2008. It’s good they tightened now rather than taking longer and letting the property bubble build.”
The Hong Kong market’s sharp reaction to China’s move was somewhat unusual, he said. Hong Kong generally follows the bigger markets in Shanghai and the U.S., but significantly underperformed this week. That suggests, according to Gorges, that some of the hot overseas money that has buoyed Hong Kong stocks has either withdrawn or is on the sidelines.
But this week’s losses may have been overdone, he said. “I expect we’ll regain some ground next week.” End
January 4 – 8, 2010 JITTERY BULL
Hong Kong stocks merrily soared higher on robust turnover early in the week. But prices and turnover suddenly turned lower during trading Thursday, a taste of volatility to come this year.
Strong early gains helped the blue-chip Hang Seng Index, with its large complement of big Chinese companies, end the week 1.9% higher, up 425 points to 22,297. The index of Chinese companies also rose 1.9%, 241 points, to 13,035.
“There are two opposing forces in the market,” Francis Lun, general manager at Fulbright Securities, told the Weekly Roundup. “One is the expectation of continued economic recovery…. The opposing force is the likelihood of withdrawal of support of the market by various governments.” This support includes low interest rates and loose money policies that have promoted economic recovery and a major stock market rally.
Optimistic force number one ruled early in the week, and the Hang Seng surged, Lun said. Then on Thursday China’s central bank increased an interest rate, and stocks tumbled. Investors worried that China was starting to soak up the excess liquidity that has helped fuel stock market increases. “The market is extremely jittery,” Lun said.
As global economic growth continues to recover, it is clear that central banks will start to reverse loose money policies. “They can’t just print money forever,” Lun said. When the U.S. begins to tighten, he said, stocks will fall sharply.
However, he doesn’t expect that to happen until the second half of this year. Meanwhile, evidence of tightening by central banks will continue to rattle markets now and then, but Lun is still optimistic for the short term. He thinks the Hang Seng will hit 23,000 this quarter. Natural gas plays may do well in the next week or so as severe winter weather in China raises demand. End
December 28 – 31 -- Solid End to Frantic ’09
Hong Kong ended a memorable 2009 with renewed buying interest in big, index moving stocks.
After drifting lower in puny turnover the first three days of the week, the blue-chip Hang Seng Index surged 1.8% in higher volume in Thursday’s half-day of trading. The Hang Seng, which includes many heavyweight Chinese companies, ended the week up 1.6%, 355 points, at 21,872. The index of Chinese stocks edged up 1.0%, 120 points, to 12,794.
Hong Kong started the year in the grips of a gloom-and-doom global recession and soon plummeted 20% to the March 10 low of 11,545. As of yesterday’s close, the Hang Seng had rebounded 89% and ended the year 52% over the close of 2008.
And the market heads into 2010 with some oomph, according to Conita Hung, head of equity markets at Delta Asia Financial Group. "Sentiment is better than in the last few weeks," she told the Weekly Roundup. "The U.S. dollar has turned soft after a rebound, and China’s A-share market has stabilized, which is also positive."
Trading was generally quiet between the Christmas and New Year holidays with the few hardy investors still in the market chasing smaller, recently listed shares early in the week. But the appetite for bigger stocks returned. China Mobile (0941), for example, rose 1.0% Wednesday and 3.6% Thursday.
"After the holidays, we’ll probably see some reallocation of portfolios and some new-year buying," Hung said. "I expect we’ll open the first day of 2010 higher, unless the U.S. dollar strengthens." She thinks banking, retail and auto stocks are the most likely to gain. End
December 21 – 24 Ho Ho Hum
Hong Kong partly rebounded from a five-day, 1,138-point losing streak the last three trading days this week to add a little festive spirit to the holiday. But turnover was weak, and the market still faces formidable obstacles.
With the Hong Kong exchange closed on Christmas, the blue-chip Hang Seng Index ended Thursday’s half day of trading up 1.6% for the week, gaining 341 points to 21,517. The index fell below its 100-day moving average late last week and dropped below 21,000 on Monday. The index for Chinese stocks rose 2.7%, 339 points’ to 12,674.
Gains by Chinese stocks traded in the U.S. helped fuel this week’s rebound. But there was little direction in the light trading, according to Benny Wong, head of research at BOCOM International. Chinese oil companies, which follow global oil prices, and laggard telecom companies generally did well.
But Wong told the Weekly Report that the two 800-pound gorillas that menace the Hong Kong market are still in the room. "The U.S. dollar has been the main factor for the last three weeks and will continue to be the main factor for the next two months," he said. After staggering lower most of the year, the dollar recently started gaining strength. Investors worry that a stronger dollar, along with prospects for higher U.S. interest rates, will draw funds out of Hong Kong.
"Negative factor number two is Chinese policy risk," Wong said. "The central government is worried about the property market bubble." Authorities in Beijing are taking tightening measures that push down property and bank stocks.
Wong expects the rising dollar to continue to drive Hong Kong stocks down in the first part of 2010, but not necessarily next week. "It will be very quiet, like this week," he said. "A lot of fund managers are still on vacation." End
December 14 – 18 The Strong Greenback Blues
Hong Kong blue chips sank through the 100-day moving average Thursday and kept sliding Friday, partly because the previously anemic U.S. dollar began showing some strength. The Hang Seng Index of big Hong Kong and Chinese companies fell 726 points for the week, 3.3%, to 21,176. The index of Chinese stocks dropped even more: 4.9%, 632 points to 12,335.
Gains in the greenback raised the troubling prospect that the carry trade might unwind, according to Belle Liang, head of research at Core Pacific Yamaichi. Most of this year the carry trade has been a conveyor belt for huge amounts of foreign funds into the Hong Kong market as investors fled a falling dollar and low U.S. interest rates for higher returns. If U.S. interest rates and the dollar make a long-term move higher, that conveyor belt could reverse directions and take funds out of Hong Kong.
The other big negative this week, according to Liang, was China policy risk. Chinese authorities began taking steps to cool off overheated property prices, and investors expect more measures will follow. Tightening in the property market also drags down banks.
However, Liang does not see either negative development as a long-term trend. "The dollar has been very weak for awhile, and it’s not strange it would rebound," she said. "But any interest rate hike in the U.S. is probably a long ways off (because of the weak economy)."
And Core Pacific is already recommending investors buy a number of Chinese properties that have been beaten down some 15%. The stocks include Agile Property (3383).
Not that Liang expects a big rebound in Hong Kong soon. "In the next few weeks’ trading will probably be weak because it is the Christmas holiday season and a lot of people will be gone." End
December 7 – 11, 2009 - - A SUBDUED END-OF-YEAR
Hong Kong followed last week’s big rally with a four-day slump broken only by a modest uptick on lackluster turnover Friday. Strong performance by some IPOs revealed the market still has some pop, but overall China-related stocks look to be subdued the rest of the year.
The blue chip Hang Seng Index sank 2.6%, 596 points to 21,902, and the index for Mainland Chinese companies gave up 3.7%, 495 points, to 12,967.
Local Hong Kong banks with exposure to Dubai debt, especially market giant HSBC, helped lead the Hang Seng lower, Howard Gorges, vice chairman at South China Brokerage, told the Weekly Report. And profit-taking spread to Chinese banks, he said.
“Next week the atmosphere will be a bit cautious ahead of the year end,” he said. “The market has had a bit of a rocky time with the Dubai debt crisis and credit problems in Greece and Spain, so generally there is some caution.”
But Gorges noted that companies or sectors with a good story can still break through. Many of the numerous IPOs coming out, though not all of them, have gained on their first day of trading. Chinese automakers’ stocks surged after they announced healthy sales and big expansion plans. Mainland steel producers supported Friday’s rally after Baosteel said it would raise steel prices. In other words, there may not be a big Christmas party for the market this year, but investors could still find a few presents. End
November 30 – December 4 -- The Big Bounce
Hong Kong staggered into this week after plummeting about 5% the previous Friday and under the weight of prospects of a reinvigorated credit crisis after the Dubai debacle. But four days of strong gains made up for all the losses and a bit more. Profit-taking set in Friday morning, but a sharp afternoon rise allowed Hong Kong to hold on to the week’s gains.
The blue-chip Hang Seng Index, including numerous big Chinese companies, surged 1,364 points this week, eclipsing last Friday’s 1,076-point drop and last week’s 1,322-point loss. The Hang Seng ended this week up 6.4% at 22,498. The index of Chinese company stocks jumped 7.9%, 990 points, to 13,462. It had lost 674 points last Friday and 858 for the previous week.
One thing underpinning the rebound was relief that Dubai’s huge debts apparently would not re-ignite the global credit crisis. But there was more.
"Investors looked at economic growth in China as a reason to buy again, and went bargain hunting," Francis Lun, general manager at Fulbright Securities, told the Weekly Report. Among the main targets for investors were Chinese banks, property companies, car makers and home appliance firms.
Lun doesn’t expect the market to continue up in a straight line, but he said, "In the medium term the Hang Seng Index will go to 23,000." Blue chips have flirted with 23,000 a couple times in the last few months and retreated each time. This time, Lun said, they will stay above 23,000. End
NOVEMBER 24 – 27 WEEKLY REPORT – DOWN BUT NOT OUT
Already reeling from prospects of Chinese bank fund raising, Hong Kong took a knockdown punch Friday when Dubai asked for a delay in repayment of its massive debt.
It seems like weeks ago now, but Mainland banks helped lead a strong rally Monday as the blue-chip Hang Seng Index flirted with 23,000. Then word came out that Chinese banking regulators directed big lenders to raise funds to cover possible delinquencies from their on-going surge in loan growth. China Merchants Bank has already proposed a rights issue for January 2010. Chinese banks began to lead the market down. The Dubai shock greatly accelerated the decline, especially hurting big local banks like HSBC (0005) that have exposure to Dubai.
The Hang Seng plunged 4.8% Friday, and for the week sank 5.9%, 1,322 points, to 21,134. The index for Chinese stocks dropped a bit more: 5.1% Friday and 6.4%, 858 points, to close the dismal week at 12,472.
With blue chips below key moving averages, stocks could fall a bit farther next week, said Eric Yuen, head of research at Guoco Group. But he said, “The basic long-term prospects for Hong Kong are still positive. We think there are good buying opportunities with the market between 21,000 and 22,000.”
Guoco’s recommendations focus on energy and consumer goods producing companies. In the energy sector, Yuen said, China will support high oil and coal prices to help promote growth in alternative energy sources. Even hard-hit Chinese banks have good prospects long term because they are a proxy for strong Chinese economic growth, Yuen said. End
NOVEMBER 16 – 20 -- CONSOLIDATING, TENTATIVELY
The China gateway Hong Kong stock market finally decided to consolidate another year-high close this week, but it wasn’t so sure about it.
After a brief, two-day pullback from last week’s high close for the year, the blue-chip Hang Seng Index roared to another year-high this Monday, 22,944, and flirted with 23,000. But then a four-day slide brought the Hang Seng below its 10-day moving average to 22,456, down 98 points and 0.4% for the week. The index of Chinese stocks slipped 1.0% for the week, 132 points, to 13,330.
Unlike some previous retreats, this one lacked drama. An absence of fresh incentives contributed to declines Thursday and Friday, according to KGI Asia’s daily reports, and weak turnover Friday reflected a lack of momentum. That contrasts with the near-6% plunge after the year-high close four weeks ago.
This week prospects of measures to cool off the Mainland property market pressured Chinese property companies, and Mainland banks faced profit-taking, Nicholas Yeo, head of China and Hong Kong equities at Aberdeen Asset Management, told the Weekly Report. “There wasn’t a lot of news to drive the market,” he said.
“We’ve rallied a lot, and it’s not surprising there’s a consolidation,” Yeo said. “It’s only healthy.” The market is at something of a balancing point now, he said, because it is fairly valued overall. Good earnings reports in the new year will be needed to drive the market solidly higher. Some sectors are overvalued, according to Yeo, including consumer products and Internet companies. End
NOVEMBER 9 – 13 - DIGESTING NEW HIGHS
After a rocky two weeks, Hong Kong stocks fought back to another year-high close at the middle of this week, then settled back to adjust to the higher altitudes.
The blue-chip Hang Seng Index, heavily laden with big Chinese companies, posted healthy gains Monday and Wednesday to reach the highest close of 2009, 22,627. Profit-taking emerged Thursday, followed by a Friday rebound that lifted the Hang Seng to 22,554, up 3.3%, 724 points, from the previous week. The index of Chinese companies rose 3.4%, 445 points, for the week to 13,462.
Turbulence after a new high is to be expected. Blue chips hit the year-high close of 22,590 just three weeks ago and promptly dropped almost 6% in the next three trading days. Reaction to this week’s new peak wasn’t as drastic, but Howard Gorges, vice chairman of South China Brokerage, told the Weekly Report that Hong Kong is now consolidating its gains.
“There’s still plenty of cash in the system,” he said. “But there’s some caution after we had a nice bounce from a correction.” Gorges pointed to mixed results from IPOs as a sign investors were not willing to jump into the market with both feet. Mixed reactions continued Friday when newly listed China High Precision (0591) surged 29% while Mingfa (0846) slumped 10% on its first trading day.
Next week Hong Kong will continue to follow Wall Street movements fairly closely, as it has for some time, Gorges said. There’s potential for market-moving news when U.S. President Barack Obama meets with leaders in China Nov. 15 – 18. However, Gorges said he thinks the results will be limited to some “patching up” on some trade disputes. He thinks China will leave to door open to future appreciation of the renminbi, which the U.S. is demanding, but decline to act in the short term. End
NOVEMBER 2 – 6, 2009 CHINA STOCKS LEAD
For the second week in a row, renewed optimism about the U.S. economy helped Hong Kong's market dress up what had been an ugly week. This week it was the big component of Chinese stocks that led the way.
Healthy gains on Friday allowed the blue-chip Hang Seng Index which includes some Mainland Chinese heavyweights, to squeak out a 0.4% rise for the week, going up 77 points to 21,830. The index of Chinese stocks did better, jumping 1.9%, 248 points, to 13,017. Last Friday, increased hope for a U.S. recovery helped Hong Kong erase some of the huge losses accumulated earlier in the week.
Despite the U.S.-inspired rebound, Hong Kong trailed other Asian markets, Belle Liang, acting head of research at Core Pacific – Yamaichi, told the Weekly Report. “The main drag on Hong Kong was the local property sector,” she said. “The Hong Kong financial secretary is very worried about a potential bubble in property prices.” Weakness in local property stocks explains the relative underperformance of the Hang Seng, which depends heavily on these companies.
Chinese stocks, on the other hand, thrived partly because big gold and oil producers benefitted from rising commodity prices. “There was also a lot of talk about the renminbi’s potential appreciation with China’s economic growth and the expected rise in exports,” Liang said. A rise in China’s currency would translate into bigger profits when gains are converted into Hong Kong or U.S. dollars. (The Hong Kong dollar is pegged to the U.S. currency.) China’s auto producers were among the biggest winners this week.
Next week’s market may be volatile, according to Liang. “At this level the value of H-shares (Chinese companies) is no longer cheap,” she said. Chinese property companies might face tough sledding, she said, because the government may remove some favorable tax and other incentives for property buyers. End
OCTOBER 26 – 30 BACK FROM THE BRINK
For a few scary days this week it looked as if China gateway Hong Kong had lost the Pixie dust that lifted stocks nearly 100% since March to a year-high just last Friday.
After closing for a holiday Monday, the blue chip Hang Seng Index plunged more than 400 points three straight days, shedding 1,325 points, almost 6%. The index for China stocks fell even more, 6.4%, 849 points. The Hang Seng, which includes numerous Mainland heavyweights, dropped under its 20-day moving average.
A big rebound Friday pushed both indexes up more than 2% and back above the 20-day moving average. For the week, blue chips lost 3.7%, 837 points to close at 21,753. Chinese stocks sank 4.1%, 547 points, to 12,769.
A number of factors accounted for the huge early losses, including falling U.S. markets and Hong Kong government tightening of the property market. But the main culprit was worry over losing the lavish global liquidity that has fueled this year’s bull run, according to Francis Lun, general manager of Fulbright Securities.
“Norway became the first European country to raise interest rates, and India also planned to withdraw liquidity from the market,” he told the Weekly Report. “That raised fears of a drop in liquidity.” Resources plays and banks bore the brunt of the losses.
Then Thursday (U.S. time) the U.S. announced robust third quarter economic growth. “That changed everything,” Lun said. “I thnk the short-term decline is over, and Hong Kong should recover the 22,000 level.” Oil companies will probably lead this charge, he said, as oil prices rise in the face of increased demand. Overall he expects renewed U.S. economic growth to fuel stock price increases. End
October 19 – 23, 2009 Boom Goes the Dynamite
Stocks in prime China gateway Hong Kong ended the week with a bang, surging to another year-high close. The blue-chip Hang Seng Index gained 1.7% on Friday, 379 points, to 22,590. The index for Chinese companies listed in Hong shot up 2.7% to 13,316, up 356 points.
For the week, the Hang Seng increased 661, a rise of 3.0%; Chinese stocks rose 4.4%, 565 points. Turnover for the week was strong. Gains in autos, shipping and other sectors overcame weakness in Chinese telecoms.
A powerful inflow of foreign funds accounted for much of the week’s gains, according to KGI Asia’s daily market commentaries. That same flood of foreign money has powered Hong Kong’s extraordinary bull market since the depths of March as China and the rest of the world loosens monetary policies to recover from the global recession.
But despite this week’s year-high close, the threat of monetary tightening that could end the bull run raised its head on Thursday. That’s when Hong Kong stocks retreated even though China announced strong third quarter GDP growth of 8.9%. At the same time Chinese authorities warned about the emergence of inflation. The Chairman of China Merchants Bank also voiced the “unusual warning” that China’s central bank need to urgently tighten monetary policy to prevent growth of asset bubbles, Taifook Securities said in its daily commentary.
However, investors concluded there was little danger of tightening in the near term. Eric Yuen, head of research at Guoco Group, told the Weekly Report, “I don’t expect to see any drastic change in Chinese policy until the end of the year.”
In a note of caution, he said he sees little upside in the index from its current level of about 18 times PE for 2009 earnings. And he said inflation could heat up quickly in coming months. Next week’s direction will largely be determined by quarterly results from big Chinese companies on Tuesday and Wednesday (Hong Kong time) and U.S. third quarter economic statistics on Thursday. End
October 12 -- 16 NEW HEIGHTS
China stocks helped lift Hong Kong to year-high closings this week before slipping a bit on Friday. The blue chip Hang Seng Index, heavily laden with big Chinese companies, flirted with 22,000, closing at the year-high 21,999 on Thursday. The index of Chinese companies also hit a year-high close Thursday, 12,860.
Both indexes retreated from high levels Friday afternoon, but blue chips gained 2.0% for the week, 430 points, to reach 21,929. Chinese companies also rose 2.0% for the week, hitting 12,751, up 256 points.
While respectable, the gains were moderate compared to last week’s surges of 5.5% in the Hang Seng and 8.4% in Chinese companies. This week started off flat, but good news from U.S. stocks helped push Hong Kong higher, Conita Hung, head of equity markets at Delta Asia Financial Group, told the Weekly Report. That good news included a rise to the high close for the year and better than expected results from financial and technology stocks.
Weakness in the U.S. dollar has been a consistent force pushing Hong Kong stocks higher this year, Hung said, and the dollar softened again this week. That helped commodity plays, including heavyweight Petrochina (Hong Kong stock number 0858). Developments in China also helped Hong Kong: Chinese economic data was glowing and A-shares were stable.
Next week it might be harder to tack on added significant gains. “Better than expected results will make the market rise,” Hung said, “but the gain won’t be as large because some of the good news has already been digested.” End
*****
OCTOBER 5 – 9, 2009 JOYRIDE ENDS WITH WHIMPER
Far-flung developments sparked a powerful rebound in major China gateway Hong Kong the first four days of this week, but signs emerged that investors were uneasy with the new, higher levels.
Hong Kong limped into the week after two week’s of losses, ripe for a turnaround, Taifook Securities said in its daily report on Monday. Then Australia’s surprise interest rate hike gave hope the global recession was ending, boosting stocks in Hong Kong and around the world. And the U.S. dollar’s fall touched off a flow of money into Hong Kong and other stock exchanges, Benny Wong, head of research at BOCOM International, told the Weekly Report.
Hong Kong’s index of Chinese companies shot up 8.4% this week, 969 points, to 12,495. The blue-chip Hang Seng Index jumped 5.5% to 21,499, up 1,124.
Turnover, however, was weak. “Low volume means investors are not eager to buy at current PE levels,” said Wong. Minimal gains the last day of the week underlined investor reluctance. The lackluster performance came despite solid gains in the U.S. and in China, which was opening after a one-week holiday.
And Wong cautioned investors who expect the slumping U.S. dollar to continue to push stocks prices higher. “In the medium term, say the next three months, there’s a chance for the U.S. dollar to rebound,” he said. “Markets may be close to their peak.”
The longer term is more positive, according to Wong. For one thing the dollar may resume its decline. In addition, some big investors seem to favor Hong Kong because of the growth potential of Chinese stocks. “I talked with institutional investors in September…, and they asked a lot of questions about China,” he said. “They foresee the U.S. and European markets being flat for one or two years and the trend is to put more money into emerging markets. They are looking to invest in Chinese stocks through the Hong Kong platform.” End
*****
SEPTEMBER 28 – OCTOBER 2, 2009 VACATION FOR THE BULL
Hong Kong got a day off for China’s National Day on October 1, and the Mainland is off for a whole week. Meanwhile the storming bull who drove this China gateway market up two-fold since the lows of March is also taking a break.
Hong Kong’s blue chip index, the Hang Seng, slumped 3.1%, 649 points, this week to 20,375. And the index of Mainland companies dropped even more, 4.4%, 530 points, to 11,526. The markets fell by almost the same percentage the week before.
“Entering the final quarter the market is having some correction because it’s had very strong gains in the second and third quarters without experiencing a meaningful correction,” KGI Asia chief operating officer Ben Kwong told the Weekly Report. There are also worries that central bankers in major countries are looking for exit strategies to rein in aggressive stimulative policies, he said. And the U.S. dollar is continuing to strengthen, which pulls money out of commodities and equities.
Commodity producers and cyclical plays, which rose sharply while the bull ran and the dollar faltered, are now the biggest losers.
But all this will probably pass, Kwong said, and fairly quickly. “It’s unlikely central bankers will aggressively adopt exit strategies,” he said, “but the (current) worries are a good excuse to correct a bit.” The dollar’s rebound is probably temporary, he added, a technical correction after a long slide. In the same way, the stock market’s fall is likely technical and temporary.
The correction will probably take the Hang Seng Index down to 19,000 to 19,500 in the coming month or two, according to Kwong. “But by the approach of the new year it should go back to around 22,000,” he said. End
*****
SEPTEMBER 21 – 25, 2009 FOLLOWING DOLLAR, IN REVERSE
Stocks slumped and IPOs fizzled in premier China gateway Hong Kong this week in a mirror image of the U.S. dollars rise. The blue chip Hang Seng Index fell 2.8%, 609 points, to 21, 024, and the index of Chinese companies plunged 4.4%, 559 points, to 12,056. On Thursday, the Metallurgical Corporation of China (Hong Kong no. 1618) plummeted 12% from the offer price of its massive IPO.
“The market still really depends on the performance of the U.S. dollar,” Conita Hung, director of Delta Asia Securities, told the Weekly Report. “The dollar rebounded, so that put pressure on Hong Kong stocks.”
In general, she said, a rising dollar drains liquidity from stocks as money flows from equities and commodities to bonds. And with U.S. interest rates at rock-bottom levels, investors borrowed dollars to sink into equities and commodities. But Hung noted that when the dollar rises investors may have to take that money out to cover short positions in the dollar.
Among the major casualties this week were Mainland banks and insurance companies. Commodity players also lost as prices fell for commodities such as gold and oil.
Hung expects the dollar to strengthen further next week. “If the dollar continues to rebound, the Hang Seng Index could test 20,300,” she said. That would be a drop of 3.4%. But she is confident the market will find strong support at that level and bounce back as high as 21,300.
Another factor next week will be the beginning of a long holiday in China as Mainland exchanges and businesses close for the National Day and Mid-Autumn Festival from Oct. 1 through 8. The Hong Kong market will shut down Oct. 1. The long holiday might focus attention on Chinese retail and hotel stocks, giving them a short-term bounce, Hung said. Among the possible beneficiaries she listed are cosmetics firm Sa Sa International (178), sports and leisure apparel and footwear player Li Ning Co. (2331) and Shanghai Jin Jiang Hotels (2006). End
*****
September 18, 2009 STARS ALIGNED FOR BULLS
China stocks led the Hong Kong market to new heights this week as major factors lined up in favor of the bulls. Blue-chip Hang Seng Index rocketed more than 1,000 points higher Wednesday and Thursday to a year-high of 21,769. Turnover also swelled to impressive proportions. The index pulled back slightly Friday, but still gained 2.2% for the week to 21,623. The index for Chinese companies gained even more, 2.8% to 12,615.
Encouraging economic news and rising stock markets in China and the U.S. attracted ample foreign funds to the Hong Kong exchange. “Both tides ran well,” Howard Gorges, vice chairman of South China Brokerage, told the Weekly Report. He said even the calendar favored bulls: Sentiment is strong ahead of China’s National Day on October 1.
Gains spread across the board. Chinese properties rebounded and banks and metals stocks rose on recovery hopes.
Analysts have periodically wondered if the market has gained too much to fast since lows in March, but this bull looks like it has room to run, at least in the short term. “Next week the feeling is the rally will keep going,” Gorges said. Chinese leaders seem to want everything to run smoothly up to National Day and the one week holiday in early October.
Aside from the possibility of unexpected bad news, the main drag on the market could be a rash of upcoming IPOs, which could suck up some of the liquidity. Heavily oversubscribed China Metallurgical, the second largest IPO in the world this year at over US$5 billion, will launch next week. End
*****
SEPTEMBER 7 -11, 2009 – ‘A’ BULL MARKET
Continued rebound in A-shares on Mainland exchanges drove Hong Kong to a new year-high close this week. Chinese heavyweight components led the blue chip HSI index up 842 points, 4.1%, to 21,161. Building on sharp increases the final two trading days of last week, blue chips ended at the highest level this year. The index for Chinese companies jumped 4.3%, 507 points, to 12,268.
Although the rise was impressive, turnover remained well below the bull market’s take-off period in May and June.
Hong Kong stocks followed A-shares up this week, just as they dropped along side Mainland counters two weeks ago. “The influence of A-shares is the most important factor,” Francis Lun, general manager at Fulbright Securities, told the Weekly Report.
The connection between A-shares and Hong Kong stocks is clear, but not direct. Aside from a limited opening to big institutional investors, A-shares are off limits to Hong Kong and foreign investors.. But often the same factor that moves A-shares also drives Hong Kong stocks. That’s understandable given that 60% of turnover in Hong Kong comes from China-related stocks. In the current case the common factor is the Chinese economy.
Worry that Chinese authorities would tighten economic policies pushed markets in the Mainland and Hong Kong lower, Lun said. But Beijing pointedly stated last week that the loose economic policy enacted to fight a serious recession would continue. The release of positive Chinese economic statistics Friday was another boost.
“Banks led the way,” Lun said of this week’s surge. “That is because measures to stimulate the economy specifically target the banking sector.”
There is enough oomph left in the bull to push the market higher next week, according to Lun. But the focus may shift to local Hong Kong banks, such as Wing Hang (302) which may attract a big investment from Mainland banking giant ICBC. End
*****
August 31 – September 4 – WITH A FLOURISHThe Hong Kong market, the key gateway to Chinese stocks, ended this week on a high note, erasing losses from earlier in the week and pushing the blue chip index back above 20,000. For good measure, previously sluggish turnover showed some life.
A breathtaking rise Friday afternoon helped the blue chip Hang Seng Index (HSI), with its mix of local and Chinese heavyweights, gain 797 points, 4.1%, in the last two days of the week to 20,319, The index dropped as low as 19,522 on Wednesday. The index of Mainland companies did even better, jumping 5.1%, 569 points, Thursday and Friday to 11,761. Daily turnover soared to Hong Kong dollar 75.5 billion Friday, from the 55-billion level earlier in the week.
As U.S. markets moved sideways, the main catalyst for the surge was stabilization of A-shares in Shanghai and Shenzhen. Worry over possible Mainland economic tightening had helped drive A-shares down more than 20% in the last two weeks.
However, there is reason to think the late week surge is not the restart of this summer’s earlier remarkable bull run. Rather it could be part of a pattern of big investors jumping in the market at low levels and pulling out again to let the market drift back down.
That’s what Alex Tang, research director at Core Pacific Yamaichi, suggested to the Weekly Report. He noted that daily volume has dropped from about 79 billion HK$ during May’s sharp rises to about 70 billion in July and August. Turnover in the first three days of September averaged an anemic 55 billion. “Turnover is a key indicator showing the direction of the market,” Tang said. “All in all, shrinking turnover is a clear indication major buyers are taking a wait-and-see attitude, looking for re-entry points.”
One sector that might be particularly attractive to buyers is banking. Hong Kong-listed Chinese banks expect higher interest rate margins and more income from fees in the second half of 2009, Tang said. And during Friday’s sharp rise, banks did very well. ICBC (Hong Kong number 1398), for example, gained 4.6%. End
August 24 – 28 STUCK IN THE MIDDLE
As U.S. stocks completed an eight-day bull run (through Thursday, U.S. time) and Chinese markets tumbled, Hong Kong found a middle way. The blue chip Hang Seng Index (HSI) with its large complement of big Chinese companies, finished more or less flat for the week, losing 0.5% to 20,098. The index of Chinese companies slipped 0.3% to 11,434. Turnover continued to be anemic.
The surging U.S. market gave Hong Kong its big lift for the week: Blue chips jumped 1.7%, 337 points, Tuesday following a rise on Wall Street fueled by optimism about a U.S. economic recovery. But even as New York continued to gain, bad news from China wiped out Hong Kong’s gains Thursday and Friday.
Benny Yu, an analyst at VC Group, defined for the Weekly Report the two forces at work: Chinese stocks are correcting as authorities there tamp down burgeoning liquidity to pop asset bubbles before they get too dangerous; overseas investors, buoyed by Wall Street’s strength, continue to be ready to sink money into Hong Kong as an alternative to low interest rates. The result, according to Yu, is that “Hong Kong is holding up pretty well this week.”
But next week, he said, there is no doubt Chinese markets will continue to fall. That is likely to cause Hong Kong blue chips to test the 20,000 level. “Looking (further) ahead, it all depends on the U.S.,” Yu said. At some point U.S. markets will lose momentum as improving recovery prospects make the central bank pull back on efforts to stimulate the economy. That would pull the props out from under Hong Kong stocks.
For now, investors have to be choosy to find winners. Yu noted that big telecoms like China Mobile announced in their results this week they would increase investment in infrastructure. He said that is good news for telecom equipment makers like ZTE Corp. (Hong Kong no. 763). End
*****
August 17 – 21 INTO THE DOLDRUMS
Sails on the formerly speedy ship of Hong Kong stocks went limp this week as investors who were once eager to pour money into the market stayed away in droves. Much of the decline in turnover and prices could be attributed to losses on exchanges in China and to a lesser extent in the U.S. But by the end of the week, investors just seemed to lose interest.
The blue chip Hang Seng Index (HSI), with its large complement of big mainland companies, never recovered from a steep decline on Monday. It fell 694 points, 3.3%, for the week to 20,199. Just last week it crossed 21,000 for the first time this year, but on Wednesday it fell below 20,000. The index for mainland stocks sank 3.7% to 11,465.
The main outside culprit for this week’s poor performance was the sharp fall in Mainland Chinese markets, Conita Hung, head of equity markets at Delta Asia, told the Weekly Report. “Hong Kong mainly followed the A-share market in China,” she said. “Overall there was concern about tightening credit and a decline in new loans.” At the same time Hong Kong sank to its week’s low on Wednesday, A-shares had plummeted 20.5% in the previous 12 trading days.
Ominous signs from China hit especially hard for Hong Kong’s H-shares and Red Chips that do most of their business in China. Chinese banks, properties, raw material and shipping companies all were weak, Hung said. On the other hand, local Hong Kong blue chips did not do as badly.
Turnover this week was puny, hovering around 60 billion Hong Kong dollars a day. That is about one-fourth below the level reached when foreign investors were pumping money in to escape low interest rates. The rates are still low, but the 86% rise from the blue chip low March 10 to last week’s peak pumped valuations to high levels. On Friday, gains in A-shares and overnight in the U.S. failed to spark investor’s buying interest. Hong Kong posted moderate losses on turnover of 60.1 billion HK dollars.
Next week, Hung said, a recovery by A-shares is likely to boost Chinese insurers and cyclical stocks on the Hong Kong market. End
*****
August 10-14, WILD RIDE
Investors got their money’s worth this week from Chinese stocks in Hong Kong, at least in entertainment value. Like a thrilling roller coaster ride, Hong Kong stocks raced up, then plunged and soared back up again. Analysts think this week’s pattern will continue: wide swings in prices, but with the market ending up higher.
After huge losses a week ago Friday, the market opened the week with a bracing ascent. The blue chip Hang Seng Index (HSI) and the Chinese Enterprise index both jumped about 2.5%. Another solid gain Tuesday put the HSI over 21,000 for the first time this year. But Wednesday both indexes plummeted about 3%. A strong rebound Thursday helped the blue chip index, which includes many big Chinese companies, gain 518 points for the week to 20,893, up 2.5%. The Chinese Enterprise index also rose 2.5%, increasing 288 to 11,900.
The push upward comes from the force that has fueled the market rally for months: abundant liquidity resulting largely from low interest rates. However, previous big gains in stock prices are now a drag on the market. “Valuation is quite expensive at 18 times earnings (for 2009),” Benny Wong, director of research at BOCOM International, told the Weekly Report. “Most investors are cautious and a bit edgy.”
That nervousness manifested itself this week when prices changed direction sharply even though there was little news to affect the market. Taifook Securities’ daily report called Wednesday’s plunge a “Pointless Retreat.”
The main outside factor pulling the market down was the continuing slump of the A-share market in China from its world-beating rise earlier in the year. A-shares fell 4.7% on Wednesday. Chinese property and bank stocks are the most vulnerable in the Mainland’s current bear market. But barring a complete crash on Mainland markets and despite occasional steep declines in Hong Kong, Wong said ample liquidity should continue to push Hong Kong stocks higher.
But he warned that a further rise in already high PE multiples might lead to a bad end. “We think that sometime in the fourth quarter or maybe early next year there will be a considerable correction,” he said. End
*****
SPLIT PERSONALITY August 7, 2009
This week Chinese stocks led the Hong Kong market higher – and lower. Yes, we’re talking about two different types of Chinese stocks. The forces behind these companies will continue to powerfully tug the market in opposite directions next week and further into the short term.
The bearish force won in the end this week. After closing at the year-high Thursday, the blue chip Hang Seng Index (HSI) plummeted 523 points Friday to 20,375, down 198 points and 1.0% for the week. The index of Chinese companies fared even worse, sinking 440 points Friday to 11,612 and losing 512, 4.2%, for the week.
The main culprits in the decline were companies registered in China that do business mainly in China and are listed in Hong Kong as well as on Chinese exchanges. These are the “H shares” and they are particularly vulnerable to worries over Chinese economic tightening that swept the market Friday. The good guys were also companies that do most of their business in China, but they are incorporated in Hong Kong and listed only in Hong Kong, not in China. These are the “Red Chips.”
Of course Red Chips also will be hurt if China severely reins in it lavish bank lending of the last eight months, but they have an ace in the hole: the prospect of a windfall from imminent listing on the Shanghai exchange. A huge excess of liquidity has pushed average Shanghai valuations to about 30 times 2009 earnings.
It was a 7.5% surge by big Red Chip China Mobile (941) on Thursday that helped turn the Hong Kong market from a loss to end at the year-high. And China Mobile gained 1.7% even as the market tumbled Friday. Of Thursday’s record-setting gain, Alex Yuen, head of research at Guoco Capital, told the Weekly Report: “The main thing is the return of some Chinese companies (Red Chips) to list in China. The Chinese are keen to develop Shanghai into an international financial center.” Companies like China Mobile and China Unicom may go to Shanghai this year, while giant bank HSBC is expected to lead foreign companies to the Shanghai exchange next year.
Some Red Chips are hotter than others. Yuen pointed out that telecoms is a laggard sector, which helps make China Mobile attractive. However, oil company CNOOC (883) is partly a hostage to global oil prices. Among H shares, banks and properties are more likely to fall due to Chinese economic tightening.
Overall, the prospect of a China listing for Red Chips is one of a number of positive forces that could push Hong Kong higher again, according to Yuen. He points out that low interest rates, a low U.S. dollar and strong Chinese economic growth will continue to push stocks higher. And he said China will probably tweak its loose money policy rather that reverse it. “In the short term the market can reach higher,” Yuen said, “maybe 21,000 to 22,000 this month.” End
*****
JULY 27 - 31, 2009 -- ON HOLD
Prime China gateway Hong Kong leveled off this week after a long climb higher. Previous gains have been over done and the market is seriously overbought, according to a wide range of Hong Kong analysts. But there’s a good chance headlong increases will start up again.
The blue chip Hang Seng Index, which includes many big Chinese companies, has shot up 81% since March 6. Last week through July 24 the HSI jumped 6.2% to cap a powerful July rally. The Chinese Enterprise index rose 5.4% last week. Then the market took a breather the first four days of this week. Analysts reiterated conclusions that stocks were overbought. On Friday the People’s Bank of China (PBoC) indicated it would continue its relatively easy money policy, calming fears of tightening and triggering a healthy gain in Hong Kong stocks. The HSI closed the week up 3.0% at 20,573, and the Chinese Enterprise gained 1.2% to 12,124.
The question is, did the PBoC’s announcement and Friday’s nice gain jump start a long-term rally? Or were the doldrums in the first four days the beginning of an overdue correction? A spike in the U.S. dollar, fears of Chinese economic tightening and a growing stock price bubble held the market back early in the week, Ben Kwong, chief operating officer at KGI Asia, told the Weekly Report.
But that was just a blip, Kwong said. “The point is that interest rates are relatively low and investors continue to seek high returns, so we’ll see more inflows of funds into the Hong Kong market,” he said. There will be a additional temporary pull-backs and an inevitable bubble, according to Kwong, but central bankers won’t ease efforts to stimulate the economy until they see sustainable growth. He doesn’t expect that until the end of the year. Meanwhile, short-term declines will be buying opportunities.
With liquidity high, Kwong said, cyclical stocks such as banks, properties and commodities will lead the market.
*****
July 20 – 24 – BUSTING OUT
Just early last week, the China gateway market of Hong Kong seemed to be teetering on the brink of a sharp decline after a period of slipping prices and weak turnover. Even after a big turn upward late last week, numerous observers saw little upside. But strong rises this week leave only one word to describe the market: Breakout.
Hong Kong’s blue chip index, with its large share of big Chinese companies, rose 6.2% this week to 19,983. The Chinese Enterprise index surged 7.5% to 11,984. Daily turnover, stuck at the HK$50 billion level only a few weeks ago, regularly broke HK$70 billion.
“Hong Kong and Shanghai markets are breaking out above recent highs after a period of consolidation,” Howard Gorges, vice chairman at South China Brokerage, told the Weekly Report. Lavish liquidity is feeding the big rise, according to Gorges and other experts. In Hong Kong, interest rates are at rock bottom, sending local investors on a nearly desperate search for returns. Overseas investors are attracted to Asia because they see the region emerging from recession faster than Europe or the U.S.
So will the investment spigot remain open next week? Gorges said: “It looks like there will be follow-through as the breakout develops, and then there will be a consolidation.”
Tai Fook Securities takes a somewhat different view on their web site. Noting that they predicted a July rally, the brokerage said the market is getting close to being overbought. They point to recent “over-enthusiastic” IPO subscriptions” which “usually precede correction of an overheated market."
Gorges noted that financials and commodities led this week’s surge and should continue to be strong next week.
*****
July 13 – 17 -- UP, UP AND NOT AWAY?
The Hong Kong stock exchange, the major gateway to China companies, showed this week that like other big markets it is hostage to sentiment about economic recovery.
After drifting lower for a couple weeks, Hong Kong plunged Monday, July 13, when big doubts arose about the recovery. In the U.S., there was talk of a need for a second stimulus, and analysts worried China would have to slow its economy after a flood of bank loans in recent months. But China reported better-than-expected GDP growth, and Intel and other U.S. companies came out with good earnings reports.
The Hong Kong blue chip index, which includes many China heavyweights, rose 6.2% for the week to 18,802. The China stock index gained 5.4% to 11,146. The rise was even more impressive after Monday’s big loss: a whopping 9.0% for blue chips and 8.4% for China stocks. And stocks finished the week with a flourish as both indexes gained more than 2% on Friday.
There was some talk in Hong Kong that this week’s rally has legs. But there was also considerable caution. One worry was that the week’s gains came on only modest rises in turnover. “Hong Kong may soon reverse its course, as current price level reflects all positive news,” Alex Tang, chief market strategist for Core Pacific-Yamaichi, said on his Twitter page.
Benny Yu, an analyst at VC Group, told Weekly Report in an email that profit-taking may be ahead. “While trading turnover is subsiding, showing weakened momentum, we think there (is) strong resistance for the stocks ahead,” he said. Yu also noted that China shipbuilder Guangzhou Shipyard and fertilizer maker Sinofert recently posted profit warnings. More such warnings are probably coming soon, weighing on stock prices.
*****
JULY 6 - 10-- "POISED TO RECOVER"
Stocks in Hong Kong reversed a week and a half of slow declines late last week and appeared poised to follow the Mainland Chinese economy and stocks higher or fall through a critical support level. After ending the previous week with a small loss, Hong Kong’s blue chip HSI index, which features numerous heavyweight Chinese companies, slid 2.6% from Monday through Wednesday. The HSCEI index of China stocks fell even more, 3.7%.
The main drag on the market was growing concern the global economic recovery, anemic to start with, was slipping. And support from surging stocks in China faltered. “There were indications the Mainland was tightening lending policies, and properties fell sharply,” Francis Lun, general manager at Fulbright Securities, told the Weekly Report.
Stocks continued to slip Thursday morning, but swung around in the afternoon. They closed the week almost unchanged since Wednesday’s soft close. The blue chip index ended down 2.7% at 17,708, and HSCEI finished off 3.7% at 10,574.
VC Group’s web site noted that the blue chip index stopped short of the 17,500 support level. But if it fell through, the brokerage said, a drop to 16,000 to 16,500 was likely.
However, there was strong sentiment that a stabilizing Chinese economy would pull the market higher. “The market underwent a mild correction this week and is poised to recover next week,” Lun Said. The rebound Thursday afternoon was led by car makers, he said. China reported that June car sales soared 36% from June 2008. Chinese insurers also rose sharply because regulators allowed them to sell a new product. KGI Research reported that Chinese home appliance makers surged Friday – Haier jumped 12.0%.
Lun predicted that Chinese manufacturers and insurance companies would lead the market higher next week, with some bargain-hunting of Mainland properties.
*****
JUNE 29 - JULY 3 – BEARS ON TOP FOR NOW
U.S. bears and China bulls fought a tug of war over Hong Kong stocks this week, with the bears on top –for the time being. Hong Kong’s blue chip index (HSI) matched its recent high in early trading Thursday but plummeted on profit-taking. Then on Friday afternoon, stocks recovered nicely from further early losses caused by Wall Street’s near-melt down on July 2. For the week, blue chips fell 2.1% to 18,203 and Chinese companies slipped 0.5% to 10,984.
The context was that Hong Kong, and particularly China plays, have already helped investors pile up healthy profits. The index of Chinese companies (HSCEI) surged 38.9% in the first half of 2009, while the HSI gained 35.4%. According to Howard Gorges, vice chairman of South China Brokerage, foreign fund managers watched Hong Kong struggle between 18,000 and 19,000 in recent weeks and then sold to lock in fat profits for the first half of the year.
But the pull of China’s robust economy and stocks is strong. China’s mainland stock index hit its 13-month high this week and rocketed 62.5% higher in the first half. The economy hums along, fueled by a huge stimulus program and lavish bank lending. “There’s definitely more optimism China will hit its goal of 8% growth in the second half,” Gorges said.
Chinese banks and properties, along with Hong Kong property companies, have led the market, he said, and may continue to do so.
Next week will probably be another struggle for stocks in Hong Kong. “Bears will see what get away with,” Gorges said. “But if (the) Shanghai (market) holds, there may not be much downside.”
*****
JUNE 22 -26 -- BULL STAMPEDE LOSES STEAM
Chinese stocks led the Hong Kong market well into the fifth month of its bull run, according to most obvious signals.
True, the World Bank’s drastic lowering of its forecast for global economic growth rocked Hong Kong and other international markets on Tuesday. The Hang Seng Index – which is bulked up by big Chinese companies – plummeted 521 points. The index of Chinese stocks sank 359.
But the plunge was a temporary derailment, not a train wreck. Stocks in China hit a 52-week high to help the Hang Seng rise 3.8%, 679 points, for the week to 18,600. Chinese stocks jumped 5.0%, 527, to 11,037.
Chinese financials led the way. Rumors of robust lending in June helped boost the sector, according to KGI Research. Basic materials, including steel makers and mining, and telecoms also stood out.
Not only that, but IPO madness returned to the market last week with a vengeance. Popular Chinese herbal tea-maker Bawang (1338) was oversubscribed a whopping 400-plus times. China Metal Recycling (773) was oversubscribed more than 44 times. “That kind of performance has not been seen since 2007,” Alex Tang, director of research at Core Pacific - Yamaichi, told the Weekly Report.
But there was a cloud over the market: sharply slumping turnover. Market activity rose dramatically from 39.8 billion HKdollars (1 US$ = 7,8 HK$) in February to 79.4 billion in May, along with rising stock prices. The trend continued in the first week of June with an average turnover of more than 90 billion. But activity fell sharply to about 60 billion a day in the third week of June, Tang said. Friday’s healthy gains came on turnover of 62 billion.
Even the frenzied IPO subscriptions were not quite what they seemed. Tang pointed out that Bawang’s oversubscription came from some 190,000 people. In addition the market is increasingly focusing on small cap stocks. This is another sign big players are trimming exposure, leaving the market to small investors and retail players, according to Tang.
Next week, Bawang will probably dominate headlines by gaining at least 25% on its subscription price upon listing, Tang said. But the market, at least temporarily, seems to be losing some of its impressive momentum.
Comments