HK & China - Market Direction 01 (May08 - Oct08)

[millionairemind]

Latest update
China stocks soar 9.5% on official aid package
* All shares rise their daily limits
* Chinese stocks listed abroad rise more
* Hopes for more market-boosting steps
* Spectacular debuts in Shenzhen show speculators back
* Scepticism over long-term outlook

SHANGHAI - Chinese stocks soared over 9 per cent on Friday in response to an unprecedented package of government measures to support the market, and as a rebound of equities overseas eased fears for the global financial system.

The Shanghai Composite Index, which sank to a new 22-month closing low on Thursday, ended 9.46 per cent higher at 2,075.091 points, its biggest daily gain since October 2001.

Every one of the more than 1,600 shares on the Shanghai and Shenzhen exchanges jumped by its daily limit in the early morning and then remained there throughout the day. Most stocks have 10 per cent limits, while some have 5 per cent.

'The rescue effort will continue to have an impact for weeks - after all, this is the first time in the 18-year history of the stock market that authorities are taking such a step,' said Zhang Qi, analyst at Haitong Securities.

The government announced after the market closed on Thursday that Central Huijin, an arm of the country's sovereign wealth fund, would help stabilise the stock market by buying shares in listed companies, including three top state-owned banks.

Authorities also scrapped the 0.1 per cent stamp tax on purchases of equities, and urged state-owned enterprises to buy back shares of their listed units from the market.

To rise further
Analysts said the index, which had plunged 69 per cent from last October's record peak, might climb a further 10 per cent or so in coming weeks, though slowing corporate profit growth and heavy supplies of fresh equity could still weigh on the market in the long term.

Rises on Friday in overseas-listed Chinese stocks, which are not subject to daily price limits, suggested further room for domestically listed shares to climb. Industrial & Commercial Bank of China's Shanghai A shares gained 10 per cent, but its Hong Kong H shares were up over 17 per cent.

As the initial impact of the support package wears off in coming days, bank shares are likely to outperform since the government said three top banks in particular would be a target of Huijin's buying, analysts said.

Turnover in Shanghai A shares was active on Friday morning but almost ground to a halt in the afternoon because so few investors were willing to sell.

Limited rescue efforts for the stock market have failed in the past; after the stock trading tax was cut in April, the index jumped 9.29 per cent on the following day, only to resume sliding within a couple of weeks.

But analysts think the latest package has a better chance of succeeding because stock valuations have fallen to levels where they are no longer expensive by historical standards.

The average price-earnings ratio of China's local-currency A shares was at a record low of 16 times historic earnings on Thursday, a level last hit in late 2005 when the market was ending a four-year slump.

The index had already begun rebounding during the day on Thursday from near technical support at 1,783 points, its high in 2004. It faces immediate resistance at 2,140, the top of its downtrend channel from late July.

Scepticism
'We think the authorities are determined to put a floor under the market and if the current measures are not enough they will follow up with others, including an economic stimulus package,' investment bank ING said in a report.

However, some analysts continue to doubt that the market has found a long-term floor. Morgan Stanley advised investors to sell into the rally.

'The rescue does draw a hard defence line, and the stock markets should stabilise, but more gradual corrections still are likely ahead,' it said in a report.

'In our view, both the A share and H share markets are having a more fundamental problem than just poor sentiment - an earnings recession coming - and we do not see this priced in yet.'

Two shares staged spectacular debuts in Shenzhen on Friday, suggesting the government's support package had encouraged speculators to return to the market.

Zhejiang Quartz Crystal Optoelectronic Technology jumped 232 per cent from its initial public offer price to 50.80 yuan, far above analysts' expectations of around 19 yuan. Sichuan Crun surged 254 per cent to 37.00 yuan, above expectations of 12 yuan.

Inner Mongolia Yili and Bright Dairy were suspended on Friday after plunging earlier this week because of China's scandal over chemically contaminated milk. -- REUTERS

[winston]

No ban on HK short sales

There is no rush to follow overseas counterparts in stopping short selling in Hong Kong, said secretary for Financial Services and the Treasury Ceajer Chan Ka-keung.

( Winston's comment: Hmmm... Should I file this post in the Names thread. Ceajer ? )

''Hong Kong's short-selling system is sound enough to protect investors in the current market situation,'' Chan said, adding government will follow up whenever the situation changes.

Currently, about 504 Hong Kong-listed stocks are eligible for short-selling and need to be covered by underlying stocks. ''Naked'' short-selling is prohibited in Hong Kong.

Earlier today, the United Kingdom banned banned short selling in financial stocks for four months and the United States put temporary halt to the practice.

[winston]

TOL:-

Would HK still be following the US Market Direction or would they now be following Shanghai ?

1) The Chinese government is now supporting the market thru their SWF

2) The SOEs have now been asked to buy back their shares

3) The Chinese goverment still has not released any info on the RMB400b fiscal & tax package

4) The Chinese goverment would probably start decreasing the bank reserve ratios as well as interest rates

5) The Chinese government would probably be increasing power rates to help the IPPs, remove the cap on coal prices and increase gasoline prices

6) The Chinese goverment may not want such a strong CNY to assist the exporters

7) Talked to some people in the Investment Industry last Thursday & Friday. They were all so negative on the markets. They could not accept the 1300 points rebound on Thursday and they certainly did not believe the 9.5% rise on Friday. And these are the "experts"

8) As long as there is no major crash in the US, I think HK will now follow the direction of SH for the next while...

[winston]

CSRC to simplify share buybacks
Kathy Wang

China's securities regulator said yesterday it aims to simplify procedures to allow listed companies to buy back their shares.The China Securities Regulatory Commission said it will streamline the procedures for share buybacks, the latest step in a series of moves to support the country's battered stock market, the world's worst performer this year.

The regulatory body last night said it will collect comments on the proposals until Sunday.

The CSRC said proposals include allowing firms to buy back their own shares without getting prior approval from the commission.

A company would only need to disclose its buyback plans in terms of both amount and price range.

Listed companies will not be able to raise capital by issuing new shares during the buyback period. Firms cannot buy back shares 10 days ahead of their results announcements and other mandatory disclosure dates, according to the proposals.

The unlocking of state-owned shares has flooded the A-share market this year, prompting it to sink to a 22-month low until last week.

After plummeting to that closing low, the benchmark index soared more than 9 percent to its limit on Friday in response to a package of government measures.

For the first time in the market's history, all listed companies in the A-share index closed at the daily increase limit of 10 percent as fears eased over the global financial turmoil.

The government said on Thursday that Central Huijin, an arm of the sovereign wealth fund, would help stabilize the stock market by share purchases in the listed firms.

It urged state-owned companies to buy shares in their listed units when it announced the scrapping of stamp taxes on equity purchases.

[winston]

Dr. Check was asking people to buy put warrants just before LEH got bailed out. Thereafter, the HSI jumped 1000 points...

In addition, just before the strong rebound on Thursday, he was also asking people to buy put warrants.

This time, he has forgotten that HSI is moving, not becuz of the US market but actully on the Chinese government intervention in the SSE...

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Rally may be a false dawn
Monday, September 22, 2008

The US financial trouble will take time to resolve. Investors are concerned that the fallout from the United States may jeopardize the global financial system.

A series of measures has been introduced in a bid to end the crisis.

These included fund injections by central banks, a ban on short selling financial stocks and a two- year US$85 billion (HK$663 billion) emergency loan to American International Group.

But there is no real improvement in the credit market, and banks are not eager to lend in the interbank market.

US Treasury Secretary Henry Paulson has suggested a financial system fix equivalent to the launch of the Resolution Trust Corporation during the savings and loans crisis in the late 1980s.

This can allow the government to take the illiquid mortgage assets off the balance sheets of financial institutions.

It will actually be buying time in the hope that now-toxic mortgages will regain their value when the US housing sector recovers.

This move, to cost US$700 billion, will take the national debt to US$11.3 trillion. Washington spends more than US$400 billion a year just to pay interest on this debt. This is on top of the US$400 billion federal budget deficit.

So how can the United States revive confidence in its financial system and convince people to hold US dollars?

It is highly likely the equities rally late last week was just a short rebound in a bear market.

The Hang Seng Index jumped 1,695.3 points to end trading on Friday at 19,327 points, an 18.4 percent rally from Thursday's 26-month low of 16,283.72.

If the HSI can climb to near 20,000 points - close to its 19-day moving average - Dr Check believes many investors will unload stocks and raise cash.

[millionairemind]

W - paiseh, I don't follow HSI commentators closely.. who is Dr. Check???

[winston]

Dr. Check writes a column in The Standard, which is widely followed.

I like his comments on Individual counters though..

[winston]

21,000 in sight this week if funds flow back
Benjamin Scent

The Hang Seng Index could breach 21,000 points by the end of the week if funds continue to flow back into the Hong Kong market, market watchers said.

"The overall market sentiment continues to improve," said Sun Hung Kai Financial strategist Castor Pang Wai- sun. "It looks like the Hang Seng Index may continue to rebound this week."

( Winston's Comment: It looks like Mr. Castor has changed his mind. He's been very negative on the market )

The blue-chip index could rise to 20,000 points today to reflect stronger investor confidence after the US government's US$700 billion (HK$5.46 trillion) plan to buy up banks' bad assets, Pang said.

American depositary receipts of index heavyweight HSBC (0005) rose 2.8 percent in New York trading Friday to close at the equivalent of HK$127.18.

China Mobile (0941) ADRs surged 6.4 percent to the equivalent of HK$85.52 on Friday.

"Whether the index can have the chance to go up further depends on the Chinese stock market," Pang said.

The near-term peak for the Hong Kong market remains difficult to estimate, but the benchmark index could reach 21,000 points or higher for the week if funds flow back into Hong Kong equities and the mainland markets continue to go up, Pang said.

"Most of the investors have become more optimistic than before," Pang said. "In the short term, the market has the chance to overreact, which would help the index to go up."

However, Ample Finance Group director Alex Wong Kwok-ying warned the Hong Kong market faces a correction after an initial rally on short-covering, and he said the local bourse could end the week as low as 18,000.

"I think people were too optimistic on Friday," Wong said. "We will not be able to hold onto the gains."

( Winston's comments: Talk is cheap. Go buy some put warrants )

The general market sentiment is still geared toward reducing open positions, according to Wong. "This is a bear market rally," he said. "I don't think we are out of the woods yet."

Tung Tai Securities associate director Kenny Tang Sing-hing said the Shanghai Composite Index could surge to 2,200 points today and may end the week at 2,500.

[winston]

TOL:-
1) The SSE has now gone up about 20% from the bottom
2) How many people actually caught the bottom on Thursday afternoon ?
3) Most people thought that it was going to be a "L" recovery and not a "V" recovery.
4) All the commentators on CNBC are still very negative on the market.

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China stocks jump 8 pct at open, banks lead

SHANGHAI, Sept 22 (Reuters) - Chinese stocks rose sharply at the opening on Monday, extending huge gains posted on Friday in response to a Chinese government rescue package for the market and news of the $700 billion U.S. bank bailout plan.

The Shanghai Composite Index .SSEC opened 8.03 percent higher at 2,241.723 points.

On Friday, the index soared 9.46 percent from a 22-month closing low after the Chinese government said it would buy shares from the market, including shares in top banks, to end a bear market in equities.

Banks led Monday's gains. Shares in Industrial & Commercial Bank of China (601398.SS: Quote, Profile, Research, Stock Buzz), China Construction Bank (601939.SS: Quote, Profile, Research, Stock Buzz) and Bank of China (601988.SS: Quote, Profile, Research, Stock Buzz) which jumped their 10 percent daily limits on Friday, opened a further 10 percent higher on Monday.

[winston]

TOL:-

HSI: Went from +550 to negative now
SSi: Still up > 6%

Decisions Decisions... So tempted to buy a call now but would the profit-taking be so great that I would be stepping in front of a train ?