(Aug. 25, 2009 - Chinavestor) Stock indices fell in Shanghai and Hong Kong following remarks from China's Premier. Wen Jiabao wrapped up a three day visit in the eastern province of Zhejiang and warned of "blind optimism", sending chills through the spines of stock investors. Remarks that access cash in the system may lead to asset bubbles from Guo Shuqing, Chairman of China Construction Bank, added to volatility. The Shanghai Composite Index is just recovering from a 20% correction and investors are still lacking confidence. The Shanghai Composite Index bounced off 87 points in the last hour of trading and fell only 77.63 points or 2.6% to 2,915.08 by the end of the trading day. Financial stocks and metal players weighted on the index following weak earnings from Aluminum Corp. of China (NYSE:ACH) and Jiangxi Copper (SHA:600362). But volume was low while volatility remain high, suggesting the index is still looking for direction.
Trading in Hong Kong was less dramatic on Tuesday. The Hang Seng Index lost 100.7 points or 0.49% on earnings concern. The largest Chinese car maker, Donfeng Motor Group (HKG:0489), announced no dividend distribution this time while the markets took weak earnings from Aluminum Corp. of China (HKG:2600) and Jiangxi Copper (HKG:0358) as a bed omen for the rest of the non-ferrous metal sector.
Looking ahead, American index futures point to a slightly higher open following news that President Obama will keep Mr. Bernanke at the FED. This positive tone may bode well for momentum China stocks such as Sohu.com Inc. (NASDAQ:SOHU) and China BAK Battery (NASDAQ:CBAK). For details please visit this morning's Overbought/Oversold report, "China momentum stocks: Sohu.com (SOHU) and China BAK Battery (CBAK)".
Chinese ADRs look neutral from a technical point of view following correction from last week. Expect quality Chinese companies do well on Tuesday.
Looking at Chinese indices and their trailing ETFs the picture is neutral. While the Shanghai Composite is coming off previous lows, the Hang Seng is within its trading range and so are ETFs that track her.