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Shanghai stocks up 71% YTD, best in the word

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advance2(Chinavestor, July 22, 2009) Stocks rose in Shanghai to another record for 2009 on Wednesday propelled by earnings, outlook and liquidity. Trading in Hong Kong remained strong until the final hour when profit taking eroded 1.3% off the Hang Seng Index <.HSI>.

The Shanghai Composite Index <.SSEC> advanced 83.4points or 2.60% to 3,296.64 points, marking a YTD return of 71%. Sinopec Corp (0386.HK)(SNP) (600028.SS), Asia's largest refiner, jumped 10% to its maximum trading limit on speculations that earnings will more then triple on oil output and hefty refining margins. A-shares of Shanghai Petrochemical (0338.HK)(SHI) (600688.SS), Sinopec's ethylene and propylene producer unit, advanced 4.96% in Shanghai and rose 7.67% in Hong Kong. Petrochina A-shares advanced 5.32% in Shanghai. Retail investors jumped on the wagon opening 484,799 stock accounts last week, the most in 2009. With strong money flows, China's stock index is set to continue to climb for the upcoming months. Small cap investors, or retail investors, make up over 60% of volume and drove stock prices of large cap blue chips. They tend to favor big, state-owned enterprise (SEO) like Petrochina or Sinopec. But herd behaviour, a typical motion of retail investors, is dangerous because they tend to abandon quality stocks when panic mode hits. As a guideline, it looks as if price appreciation of Sinopec and Petrochina will be followed by CNOOC Ltd soon, driven to astronomical highs and will collapse in a bubble. So just remember to quit before it's too late.

 

But trading in Hong Kong is more rational where investors locked in profits. Shares of China Eastern Airlines (600115.SS)(0670.HK)(CEA), Ping An Insurance (2318.HK) (601318.SS) and Aluminum Corp. of China Ltd. (2600.HK)(ACH)(601600.SS) all succumbed to profit taking. But shares of Huaneng Power International (0902.HK) (600011.SS) (HNP), Sinopec, and China Life (601628.SS) (LFC) (2628.HK) rose.

We noticed a significant block trade of Sinopec (0386) and China Telecom (CHA) (0728.HK) H-shares, a sign of possible price increase in the near future.

 

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