Jan. 26, 2010 (Chinavestor) Shares of Chinese companies tumbled both in Shanghai and Hong Kong on Tuesday as investors reevaluate their position after the Chinese government has started to cool off the economy. The Shanghai Compoaite Index (SHA:600001) fell -75.02 points or -2.42% to three months lows. Fears of asset bubbles, or lack of liquidity will hurt property prices, sent real estate developers in a tailspin. China Vanke (SHE:200002), the largest listed Chinese developer, fell -3.2% while China State Construction Engineering Corp. (SHA:601668), with the largest IPO in 2009, tumbled -3.2%. The largest Chinese steel maker, Baoshan Iron & Steel (SHA:600019), fell -3.0% as investors worry about softening demand for construction materials.
The selloff was universal in Hong Kong, forty two components of the forty four member Hang Seng Index fell on Tuesday. The Hang Seng Index (INDEXHANGSENG:.HSI) tumbled -489.22 points or -2.38% to 20,109.33. Tsingtao Beer (HKG:0168), the largest brewery in China, tumbled -10.1% followed by metal players and airliners. Jiangxi Copper (HKG:0358) fell -7.0% followed by a -5.3% drop of Aluminum Corp. of China (HKG:2600). All three listed airliners fell; China Eastern Airlines (HKG:0670), Air China (HKG:0753) and China Southern Airlines (HKG:1055) tumbled -6.0%, -5.3%, and -4.5%, respectively.
Index futures point to a lower open for American exchanges. But as the overbought/oversold chart indicates, U.S. equity markets, especially the DJIA, are way oversold and a turnaround is certainly an option. Corporate earnings have been good for the most part, Apple Inc. (NASDAQ:AAPL) reporting record quarter.
American equity markets are clearly oversold. It is important to keep in mind that oversold is not necessarily the same as being bullish. It merely infers that the security has fallen too far too fast and may be due for a reaction rally.