Jan. 16, 2010 (Chinavestor) The second week of 2010 was full of excitement for China stock investors. The earnings season kicked in the U.S. while China came with its own slew of economic news. Chinese regulators approved short-selling and futures trading for Shanghai early the week, increasing volume of large cap stocks. But the excitement was short lived and stocks reversed course on Wednesday after the Chinese Central Bank increased cash reserve ratio for commercial banks besides other credit tightening measures. Credit tightening came on the top of signs that China is exiting stimulus, like the increase of tax on passenger cars to 7.5% from 5.0%, spreading fears that the exit might be too early. Real estate and autos fell hard on Wednesday and continued to slide in Hong Kong while stocks stabilized in Shanghai. The Shanghai Composite Index ended the week -52.99 points or -1.62% lower while the Hang Seng Index off Hong Kong fell five days in a row and shed -870.02 points or -3.86% for the week.
But the sell-off was far from universal. China Mobile (HKG:0941) (NYSE:CHL) advanced 6 days in a row before reaching a plateau on Friday. Chinese airliners caught fire on Thursday after China Southern Airline (HKG:1055) (NYSE:ZNH) and Air China (HKG:0753) reported hefty increase in passenger traffic and passenger loading factor improved. China Southern Air (HKG:1055) advanced +6.7% for the week while Air China jumped +10.84%. China Eastern Airline (HKG:0670) (NYSE:CEA) ended the week +4.63% higher.
But a stock that stole the story of the week is Baidu.com (NASDAQ:BIDU). Google Inc. (NASDAQ:GOOG) announced that the company is no longer filtering search results in China and might close down the Google.cn site altogether following cyber attacks on its site originated from China. Assuming that Baidu.com will snap up most of the market share of Google upon GOOG's exit, BIDU will be commencing 95% of the search market in the world largest internet market. Shares of Baidu.com (NASDAQ:BIDU) surged on Wednesday and Thursday, but became overbought and traded sideways on Friday.
The earnings season got off to a poor start in the U.S. Alcoa Inc. (NYSE:AA) reported narrower losses from a year ago but investors were expecting the aluminum giant returning to profitability. JP Morgan & Chase (NYSE:JPM) reported strong numbers but investors were ticked off by a $2 billion cash reserve set aside to cover consumer-loan losses. And to highlight the pessimistic mood of the market on Friday, think about this: Intel (NASDAQ:INTC) reported better than expected revenues, profit and guided higher - yet fell -3.17% on Friday in a broad market sell-off.
Part of the problem for equity markets is the new found strength of the dollar. Greece is having hard time to keep its budget in control, pressuring the euro. The strength of the green back pushed oil and commodity prices lower as well.
Lower oil and excess demand - plus news from Germany - contributed to a significant plunge in the Chinese solar sector. Previous high flyer Canadian Solar (NASDAQ:CSIQ) plunged -20.7% followed by Trina Solar (NYSE:TSL) and Yingli Green Energy (NYSE:YGE). An indication of the weakness of the solar sector is that six of the worst ten stocks of the week came from the solar sector.
But not everything was sour the week. Semiconductor Mannufacturing (NYSE:SMI) jumped 23.7% for the week on the back of overall improvemt within the semiconductor sector. China Infrastructure Development (NASDQ:CIIC) rose 17.% for the week but the rise is more of a technical correction following a -45% fall earlier. Baidu.com (NASDAQ:BIDU) ended the week 15.7% higher followed by China Southern Air (NYSE:ZNH) with a 10.8% advance.
And while the Chinese real estate sector suffered, one has to wonder where the bottom is going to be. Shares of E-house Holdings (NYSE:EJ) and Home Inns & Hotel (NASDAQ:HMIN) fell -12.1% and -12.4%, respectively. But current weakness might just be a good time to enter the sector, as one Chinavestor client suggested. He wrote: "took this picture when travelling in Xiamen city of China last month. It looks like a fairly good quality hotel. The picture was taken from the tour bus at night."
There is a lot of news coming up next week.Japan is going to release consumer confidence index on Tuesday. China is going to report fourth quarter GDP numbers on Thursday. Analysts expect a staggering 10.9% growth, a significant improvement from a 8.9% grwoth in the third quarter. Part of the improvement is due to strong export grwoth in December. China will report CCI and PPI numbers on Thursday as well, and a fixed asset investment report.
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