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Small cap China stocks outperform on Thursday

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feel_good1 March 25, 2010 (Chinavestor) Looking at the China stock universe at noon today it is apparent that small cap stocks took the lead. Part of the resurgence is earnings related , e.g. China Automotive Systems(NASDAQ:CAAS) and Tongxin International (NASDAQ:TXIC),  part is sector rotation like Perfect World (NASDAQ:PWRD) and Changyou.com (NASDAQ:CYOU) vs. Shanda Games (NASDAQ:GAME), and part is pure technical correction such as is the case with Melco Crown Ent. (NASDAQ:MPEL), Fuqi Int. (NASDAQ:FUQI), City Telecom (NASDAQ:CTEL) and Tongjitang Chinese Medicines (NYSE:TCM).

Other notable movers today include China Unicom (NYSE:CHU), Semiconductor Manufacturing (NYSE:SMI) and CDC Corp. (NASDAQ:CHINA). On the earnings front, Petrochina (NYSE:PTR) reported in line with expectations.

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Large cap stocks had a slow start on Thursday, China Unicom (NYSE:CHU) fell -4.1% in Hong Kong on worse-than-expected 2009 Q4 profits and outlook. China Unicom 2009 financials disappoint. China Telecom (NYSE:CHA) is seen by many as the best China telecom play at the moment as all three Chinese carrier reported 2009 financials earlier this week. China telecom industry in 2009.

Large cap Petrochina Co. Ltd. (NYSE:PTR), the largest Chinese oil producer, reported in-line with expectations today. Revenues and profits fell as price of oil sank from $145 in 2008 summer to $34 in February 2009. But the company operated much the same as in 2008 with no significant changes in oil production or refining. Petrochina 2009 net down on lower oil price.

The rest of the oil triumvirate, CNOOC Ltd. (NYSE:CEO) and Sinopec (NYSE:SNP), are going to report later this week. China stock earnings calendar, March 22-26, 2010.

But it's the small caps that are on the move today. China Automotive Systems (NASDAQ:CAAS) reported excellent 2009 Q4 numbers before the open today. Revenue and profits beat previously elevated estimates, but the 56% YoY growth is going to slow down to +20% in 2010,  according to the company. But investors don't seem to mind that change in gears, shares of the company trade +5.86% higher at noon. CAAS beats 2009 Q4 estimates.

Smaller auto related stock, Tongxin International (NASDAQ:TXIC), is rinding on the back of strong earnings from CAAS. Shares of the company are up +5.16% at noon. Tongxin Int. (NASDAQ:TXIC) is going to report later in April.

Shares of oversold stocks bounced back up: FUQI International (NASDAQ:FUQI) is trading +5.04% higher following a disastrous -44% drop last week. The oversold monitor drew attention to this stock - no wonder we picked it last Friday to the Weekly Stock Buy List for Chinavestor Advanced members. It was a good pick, indeed! Besides being way oversold, we found out that changes in restated earnings don't justify a -44% drop. Don't panic FUQI investor!

Rally of Tongjitang Chinese Medicines Co. (NYSE:TCM) doesn't come much of a surprise. TCM is up +7% at noon today. We wrote this morning that "oversold stocks to watch out today: Fuqi International (NASDAQ:FUQI), Tongjitang Chinese Medicines Co. (NYSE:TCM) and Longtop Financial Technologies Limited (NYSE:LFT)". Earnings, momentum to drive China stocks on Thursday.

Strength of Semiconductor Manufacturing (NYSE:SMI) is a derivate of an excellent run in Asia before the open. Shares of the company (HKG:0981) advanced +7.3% in Hong Kong, ensuring a similar gap up on the NYSE. This wasn't a trading opportunity today...

Shanda Games (NASDAQ:GAME) is trading +6.0% higher with heavy volume today. This is a complete opposite of what happened to NetEase.com Inc. (NASDAQ:NTES) a day before. We can't say anything else than we had to say this morning in the overbought/oversold report: "A rotation is taking place within the Chinese online game sector - Shanda Interactive (NASDAQ:SNDA) is catching up with NetEase.com (NASDAQ:NTES) and Changyou.com (NASDAQ:CYOU). These latter two reported 2009 Q4 revenue and earnings growth while profitability fell for the rest of the sector. China online game landscape as earnings roll in." Shares of Perfect World (NASDAQ:PWRD) are hurt the same way as NetEase.com (NASDAQ:NTES).

Technical indicators come handy when stocks are trading at extremes. We highlighted that current stock price of City Telecom (NASDAQ:CTEL) looks excessive - "City Telecom (NASDAQ:CTEL) continues to tower over the rest of the overbought China stock list. With a seven day winning streak, time has come to take a breather.". Quote from Earnings, momentum to drive China stocks on Thursday.



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