(Sept. 11, 2009 - Chinavestor) The moment of truth, at least for the short term, got revealed on Friday after a slew of economic data rolled out of China. August factory output rose 12.3% from last year, the fastest in the last twelve months. Retail sales grew by 15.4%, the most in 2009. Inflation was 1.2% lower than in August 2008, keeping a lid on liquidity concerns. Urban fixed-asset investment, a measure of the property market, grew by 33% in the first eight months of the year, a very healthy reading. But exports to the U.S. fell 21.8% from last year, indicating that the recovery is China based. Altogether the reading was very positive, sending the Shanghai Composite (SHA:000001) up 64.91 points or 2.2% to 2,989.79.
The positive reading kept Hong Kong shares on a winning streak, the index is up seven days out of eight trading days in September. The Hang Seng Index advanced 91.86 points or 0.44% to 21,161.42 points by the close. Hong Kong listed H-shares of China Unicom (NYSE:CHU), China Mobile (NYSE:CHL), China Life Insurance (NYSE:LFC) rose, suggesting a strong open for the ADRs. But airliners, China Eastern Airline (NYSE:CEA) and China Southern Airline (NYSE:ZNH) fell in Hong Kong after strong gains for the week.
Looking at the Chinese ADR universe from a technical point of view, the picture is rosy. With most China stocks on fire, 20 ADRs are trading above their 50-DMA, the tone is positive, yet only one China ADR is overbought. The relative strength indicator is still muted, signalling additional upside potential lays ahead.
Looking at Chinese indices and trailing ETFs, the upside is limited for the iShares FTSE/Xinhua 25 Index (NYSE:FXI), the PowerShares Golden Gragon (NYSE:PGJ), and the Claymore/AlphaShares China Small Cap ETF (NYSE:HAO). This assessment is based on the fact that these ETFs tail the Hang Seng Index and looking at them from a technical point of view, they're right at the same position as the Hang Seng close this morning.