Chinese stocks fell in Shanghai and in Hong Kong simultaneously on Monday, setting a somber tone for China ADRs before the bell. She Shanghai Composite Index <.SSEC> fell 33.38 points or 1.07% but remained above 3,000 on Monday. Investors got jittery on two fronts: for one mega IPOs have returned sucking up liquidity from elsewhere and for two fiscal policy markers signaled a tightening on credit markets. Exports data show U.S. economy took less of China's products improving the American trade deficit but hammering global trade volume. The good news is that China's domestic activity seems to be able to absorb the loss of exports. The latest sign of improvement came from China's largest steel maker on Monday, Baoshan Iron & Steel, announcing a hot rolled steel price increase of 14% thanks to strong demand from automakers and buoyant construction activity.
Trading in Hong Kong mirrored overall global sentiment on Monday. The Hang Seng Index <.HSI> fell another 453.79 points or 2.56% to 17,255.63, a cumulative five day loss of 880 points or 4.75% just in the last five trading sessions. Investors worry about possible credit tightening in China on top of weak U.S. retail sales and exports. China's third largest carrier, China Eastern Airlines (600115.SS: Quote Profile)(0670.HK: Quote)(CEA: Quote) was the only stock to cheer investors. The company announced regulatory approval for its plans to merge with Shanghai Airlines (600591.SS: Quote, Profile) effectively increasing her market share to 50% in the greater Shanghai area. The two companies have been in a price war for years resulting in steep losses for the two. China East Air also announced plans to issue shares woth about $1 billion in Shanghai and Hong Kong to replenish capital.
American listed Chinese stocks are set to open lower on Monday. But China stocks look cheap from a technical point of view and thus will participate in a broad rally once market sentiment turns.