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Volatility is back for China stocks on Monday

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bubble_2 March 29, 2010 (Chinavestor) Increased volatility rattles nerves of small cap China stock investors but large caps took the lead by noon on Monday. NYSE:FXI, the ETF following an index made up of the 25 largest Chinese stocks, is up +1.8% by noon while small cap proxy NYSE:HAO advanced +1.5% "only". But the big percentage movers are small cap stocks like China Yuchai International Limited (NYSE:CYD) and Synutra International (NASDAQ:SYUT) whose shares advanced double digits by noon. Chinese solar companies extend their advance from Friday making up five out of the best ten China stocks measured by % change. Shares of Canadian Solar (NASDAQ:CSIQ) and Trina Solar (NYSE:TSL) lead the sector higher with smaller cap JA Solar (NASDAA:JASO), Solarfun Power Holdings (NASDAQ:SOLF) and China Sunergy (NASDAQ:CSUN) to follow.

Stocks with the steepest decline include Gushan Env. (NYSE:GU), Fuqi International (NASDAQ:FUQI), Acorn International (NYSE:ATV)  and Melco Crown Entrainment (NASDAQ:MPEL).

On the earnings front, large cap stocks reported before the bell: China Petroleum & Chemical Corp. (NYSE:SNP) and Aluminum Corp. of China (NYSE:ACH). 

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There are two factors responsible for today's erratic trading: large cap stocks are fueled by the introduction of index-futures, margin trading and short selling in Shanghai. These advanced trading options are expected to increase trading volume and ultimately stock price for liquid, large cap stocks. To highlight the extent of the excitement in Shanghai, consider this: each and every component of the SSE-50 Index, made up of the 50 largest companies listed in Shanghai, advanced on Monday and only one fell last Friday. There is a broad, solid rally taking place in Shanghai following the news.

The other factor is the overall market strength in the U.S. helping small cap China stocks to fly. The mid-day indicator spotted the gap up of China Yuchai International Limited (NYSE:CYD) today. The rally is supported by huge underlying volume, suggesting the rally is here to continue at least till the end of the trading day. But then watch out for the overbought indicator tomorrow morning for a technical check-up.

Synutra International (NASDAAQ:SYUD) is up +12.1% following an analysts upgrade. Shares of the company has been trading at extremes in the past, the overbought / oversold monitor picked up sudden price moves of the stock earlier.

Shares of Chinese solar makers extend their rally from last week. We spotted a significant uptick in the price of Trina Solar (NYSE:TSL) last Wednesday and again on Friday. Trina solar leads solar sector higher. Part of the surge is thanks to an analyst upgrade of Trina last week. This ignited the rally but we're of a view that solar plays are attractive on valuation and outlook as well. As such, strength of Canadian Solar (NASDAQ:CSIQ) and more volatile smaller cap plays like JA Solar (NASDAA:JASO), Solarfun Power Holdings (NASDAQ:SOLF) and China Sunergy (NASDAQ:CSUN) should come as little surprise. Complete 2009 Q4 China solar stock guide.

The dead-cat bounce of FUQI Intentional (NASDAQ:FUQI) seems to be over. The stock fell -44% following allegations that it misled investors and had to restate all of 2009 earnings. Last week the stock bounced back up 15% at one point but started to lose steam as the week progressed. While the revision itself doesn't justify a -40% correction, the loss if investors' confidence cost the company dearly.

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Shares of Sinopec (NYSE:SNP) reacted sluggishly to 2009 annual report with most of the news already incorporated into the stock price. The company reported 1.5% oil production and a 6.7% refining increase from 2008, but lower oil prices meant higher refining margins and record profit for the year. Outlook is less bright with price of oil above $80/barrel... Sinopec 2009 net jumps on lower oil price.

Shares of Aluminum Corp. of China (NYSE:ACH) advanced +0.5% on Monday following 2009 Annual Report and 2010 Profit estimate. Besides the facts the Company is reported to issue RMB10 billion ($1.46 billion) corporate bonds to cover cash shortages for 2010. Chalco announced 2009 annual results and profit estimate for 2010 Q1.

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