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

[winston]

From DBS:-

Yesterday’s 3.6% rebound in the SSEC failed to ignite interest in the S-chips as the FTSE China Index gained less than 1%.

The technical rebound in the SSEC was led by bargain hunting on news that major institutional investor China Life Insurance was investing heavily in mutual funds.

Technically, we continue to see short-term resistance for the SSEC at below 3100.

We will hold a positive view on the SSEC if the index falls to 2500 in the weeks ahead.

[winston]

The talk of a Stabilization Fund is getting louder and louder. The argument is that Taiwan, Spore, HK, Malaysia and other countries have it in one form or another. So why not China ? Of course, it can come in many forms eg. Social Security etc..

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China's Stocks Tumble on Interest Rate Speculation;
By Zhang Shidong

June 27 (Bloomberg) -- China's stocks tumbled, putting the benchmark index on course for its worst month on record, as investors speculated the government will increase interest rates this weekend to help tame inflation.

Shanghai Pudong Development Bank Co. led banks lower on concern lending growth will slow. China Vanke Co., the nation's largest listed property developer, dropped because higher borrowing costs may stop homebuyers from taking out mortgages. China Petroleum & Chemical Corp. fell as record crude oil prices threaten to widen refining losses.

``Investors are panicking,'' said Zhang Ling, who manages $1.1 billion at ICBC Credit Suisse Asset Management Co. in Beijing. ``There's speculation in the market that the central bank will raise interest rates over the weekend.'' The People's Bank of China's press office declined to comment.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, declined 164.89, or 5.5 percent, to 2,816.02 at the close, taking its June tumble to 22 percent.

The three-year-old benchmark measure has slumped 47 percent this year amid concern official measures to control inflation will hurt earnings growth. The central bank has ordered lenders to set aside a record amount of money in reserve after raising interest rates six times in 2007.

Zhou Xiaochuan, governor of the People's Bank, last week said his bank may implement ``stronger policies'' to curb price increases. Consumer prices rose 7.7 percent in May, down from the previous month's 8.5 percent, which was the fastest pace in almost 12 years.

`Way Too Early'

The CSI 300's drop today snapped a three-day, 6.8 percent rally. All of its 10 industry groups fell, with just 13 of its 300 constituents advancing. The index lost 1.2 percent this week.

``It's way too early to say we have reached the bottom,'' said Lan Xue, head of China research at Citigroup Inc., in an interview with Bloomberg Television today. ``Probably it's the steepest correction the China market has ever had since the market started. It will continue to be clouded with external uncertainty and internal problems.''

Profit growth at China's industrial companies slowed to 20.9 percent in the first five months this year from 42.1 percent a year earlier, the statistics bureau said today.

Pudong Bank, Citigroup's Chinese partner, slid 6.3 percent to 22.99 yuan, the steepest decline since June 19. China Vanke fell 7.3 percent to 9.04 yuan, the first drop in four days.

Aluminum Corp. of China Ltd., the nation's biggest maker of the lightweight metal, slumped 7.1 percent to 13.19 yuan. Citic Securities Co., China's largest publicly traded brokerage, lost 8.3 percent to 24.55 yuan.

Oil Prices

China Petroleum, the country's top refiner, lost 9.1 percent to 10.27 yuan, the biggest decline since Jan. 28. The company's refining business posted a first-quarter operating loss of 20.6 billion yuan ($3 billion). PetroChina Co., the nation's No. 2 refiner, dropped 3.5 percent to 15 yuan.

Oil futures rose to a record $141.71 a barrel in New York in after-hours trading today, having doubled in the past year. Prices were recently at $141.35 a barrel.

Air China Ltd. slumped 8.5 percent to 8.11 yuan. China Southern Airlines Co., the nation's biggest carrier by fleet size, slid 9.5 percent to 6.79 yuan. Jet fuel, refined from crude oil, has climbed 95 percent in the past year.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 5.3 percent to 2,748.43. The Shenzhen Composite Index lost 6 percent to 795.86.

The following stocks rose or fell and the stock symbols are in brackets after companies' names.

Dazhong Transportation (Group) Co. (600611 CH), which operates Shanghai's second-biggest taxi fleet, jumped 0.97 yuan, or the 10 percent daily limit, to 10.62 yuan. The securities regulator said it will on June 30 review the initial public offering application of Everbright Securities Co., in which Dazhong has a 2.1 percent stake.

Ping An Insurance (Group) Co. (601318 CH), China's second- biggest insurer, dropped 2.64 yuan, or 5.1 percent, to 49.04, the steepest decline since June 19. The stock retreated on concern a plan to buy shares of Fortis, Belgium's biggest financial services company, will erode capital, said Yuan Lin, a Beijing- based analyst at BOC International Holdings.

[8percentpa]

China is the secular story of the decade, or even maybe the century. Jim Rogers is right in saying this may be a good time to buy. However, the stock market will probably be lacklustre for the next 12-18 mths given the weak US macro outlook, inflation, energy problems. But if your investment horizon is not as long as Hollywood marriages (ie > 2 yrs lah), it is really time to buy China.

[millionairemind]

China is the secular story of the decade, or even maybe the century. Jim Rogers is right in saying this may be a good time to buy. However, the stock market will probably be lacklustre for the next 12-18 mths given the weak US macro outlook, inflation, energy problems. But if your investment horizon is not as long as Hollywood marriages (ie > 2 yrs lah), it is really time to buy China.

Maybe. But I doubt we will see SSE at 6000pts in the next 5 years...

Too much resistance liao after it has fallen so much...

Too many security guards waiting to get out once the stock lets them break even... investor psychology at work..

[winston]

China Stocks Not Cheap Enough Yet for KBC Goldstate, CIO Says
By Chua Kong Ho

July 2 (Bloomberg) -- China's stocks, trading at the lowest valuations in almost two years, still aren't cheap enough for KBC-Goldstate Fund Management Co. to raise its equity holdings because inflation may erode company profits.

KBC-Goldstate, a venture between Belgium's KBC Asset Management NV, China's Goldstate Securities Co. and Capital Airport Holding Co., has cut the holding of equities in its $609 million Momentum Investment Fund to less than 11 percent, said Chief Investment Officer Lode Vermeersch. He declined to be specific about the fund's assets, which include bonds and cash.

``We're searching for answers,'' Vermeersch said in an interview today, when asked whether his Shanghai-based company will increase its stock holdings. ``At this moment, there's a need for a lot of consideration before we take a position.''

The CSI 300 Index, which tracks yuan-denominated stocks in Shanghai and Shenzhen, has slumped 49 percent this year, the most among benchmark indexes in the world's 20 biggest equity markets, amid concern government measures to curb inflation will hurt company profits.

The tumble followed a sixfold surge in the two years through 2007 that took valuations to 53 times reported earnings on October 16, when the CSI 300 closed at a record. The ratio has since declined to 20 times, the lowest since August 2006.

``Of course valuations are attractive compared to October,'' Vermeersch, 44, said. ``Are they attractive enough? That's hard to answer.''

KBC Goldstate as of March 31 had 11 percent of the $609 million Momentum Investment Fund in stocks 45 percent in bonds and 44 percent in cash, according to its quarterly fund report.

Inflation, which climbed to 8.1 percent in the first five months of this year compared with 4.8 percent for all of 2007, could affect the ability of companies to pass on higher costs, Vermeersch said. Slowing global growth will also cut demand for Chinese exports, while consumption could decline if wages can't keep up with price increases.

``Most investors are waiting for the quarterly earnings reports to come out to give some indicator whether profits have worsened or are in line,'' Vermeersch said.

[winston]

From DBS:-

SSEC to retreat to 2430 (max stretched downside 2200).

Despite current rising fears about a slowdown in China’s economy, we will adopt a positive view on the SSEC at 2430 from a technical perspective because at that level, the downside is either nil (assuming turn point at 2430) or just a ‘mere’ further 230pts (assuming the SSEC hits the max stretched downside of 2200).

The anticipated bear rally that follows subsequently should see a recovery back to 3500 – 3600 (38.2% upward retracement between Jan08 high at 5522 and the upcoming low point)

[winston]

WEN WEI PO

-- Some analysts believe Hong Kong stocks will rebound because of positive factors such as profit forecasts by mainland entities and the possibility of lower international oil prices upon G8 talks.

[winston]

"We are taking the lead from Shanghai's stock market. There is a bit of a rally today, after recent losses on the mainland markets, mainly because of the Olympics. The government might want to prop up the market in time for the Olympics," said Howard Gorges, vice chairman at South China Securities.

Louis Capital Markets has esimated that 5 million tourists will visit China this year, up from 4.2 million in 2007. Visitors during the games will likely spend about $4.5 billion, it said.

[winston]

The easing of oil prices from record highs also lifted sentiment on airlines.

Air China, the mainland's biggest international airline, jumped 8.1 percent to HK$3.84. China Southern Airlines, the nation's top carrier, rallied 4.5 percent to HK$3.03 and smaller rival China Eastern Airlines gained 3.6 percent to HK$2.31.

[winston]

"A sharp rebound in the Shanghai bourse helped lift local sentiment, triggering some bargain-hunting," said Andrew Wong, associate director at One China Securities.

The Shanghai benchmark index ended the morning session up nearly 4 pct as banks surged following first-half earnings forecasts from China Merchants Bank and CITIC Bank.

Wong also noted "reports that Beijing is studying measures to stabilize the mainland property market and address liquidity problems faced by many developers.".

Mainland media reported that officials from China's Ministry of Housing and Urban-Rural Development and the central bank have met with property developers recently to discuss matters related to the property market.

"Investors are hoping that the central government might also consider some measures to support the stock market as well," Wong said.

Some analysts attributed the sharp rebound in Shanghai today partly due to rumors that China will set up a 17 bln yuan stabilization fund for the stock market.

( Winston's Comments: RMB 17b is a bit small though but better than nothing. They can always increase the size later though.. )