China stock indices fell on Wednesday both in Shanghai and in Hong Kong. The Shanghai Composite Index <.SSEC> shed 42.94 points or 1.24% to 3,428.50. Banks and commodity players led the decline on Wednesday, breaking a five day winning streak. Banks started to fell a day before but the weakness in commodity players brought the index down to its knees. The Shanghai Composite is the best performing major index in the world for 2009, where the index takes frequent stops. But the overall sentiment is very positive with strong earnings and ample liquidity fueling the rally.
Trading in Hong Kong reflects international market sentiment combined with earnings of Chinese companies. The Hang Seng Index <.HSI> fell 301.66 points or 1.45% to 20,494.77 points. The index is just barely off its YTD high and latest drop is seen as a short term correction. Chinese telecom players were strong, China Unicom (HKG:0762)(NYSE:CHU) advanced HK$.26 or 2.6%. China Mobile (HKG:0941)(NYSE:CHL) and China Telecom (HKG:0728)(NYSE:CHA) fell but still well outperformed the overall index. Chinese airliners, iron and steel makers and stocks that contributed the most to the rally in the last four days succumbed to profit taking.
Going back to America, index futures point to a narrow open. The markets are just digesting the latest jobs report. Looking at Chinese ADRs before the bell, China stocks re overbought and in a dangerous position from a technical point of view. The number of overbought Chinese ADRs are high and rising, all short term momentum indicator suggest a pull back is possible.
Looking at Chinese ETFs from a technical point of view, the iShares FTSE/Xinhua 25 Index (NYSE:FXI) is in line with its underlying index, the Hang Seng. But the Morgan Stanley China (NYSE:CAF) is still behind the Shanghai Composite, suggesting a bullish sentiment.