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China shares up in HK but fell in Shanghai on Tuesday

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Asia_2 March 23, 2010 (Chinavestor) Shares of Chinese companies fell in Shanghai as investors worry about the effects of the government's efforts to cool the economy. Even though the Shanghai Composite Index (SHA:000001) lost a relatively minor -21.45 points or -0.70% throughout the day, the sell-off was universal, stocks outnumbering those that advanced ten to one out of the fifty largest Chinese listed companies. Commodity and metal stocks led the decline; shares of Aluminum Corp. of China (SHA:601600) (NYSE:ACH) fell -2.6% while Baoshan Iron & Steel (SHA:600019), the largest steel maker in China, shed -2.2% on Tuesday. China Cosco (SHA:601919), the largest container shipping company in the world, fell -2.4%. But oil stocks weathered the storm relatively well, China Petroleum & Chemical Corp. (SHA:600028) (NYSE:SNP) and Petrochina (SHA:601857) (NYSE:PTR) closed only -0.3% lower for the day.

International pressure is building to let the Chinese currency, the yuan or remnimbi, appreciate against the dollar. But that is unlikely given that March may be the first month after six years that China would have a trade deficit. The correlation between the currency and airliners profitability is as follows. For carriers most of their debt - purchase of airplanes - is denominated in dollar while their income is in yuan. When the yuan loses value against the greenback, financial strength measures worsen for airliners. Besides this short term problem, Air China (HKG:0753) was downgraded by UBS AG, citing excessive payment for a controlling stake in Shenzhen Airlines, putting pressure on valuations. Shares of Air China (HKG:0753) fell -3.5% followed by China Eastern Airlines (HKG:0670) (NYSE:CEA) with a -3.4% decline. China Southern Airlines (HKG:1055) (NYSE:ZNH) fell -6.0%, making it the worst performer of the 42 member Hang Seng Index.

But Chinese telecoms did well, shares of China Telecom (HKG:0728) (NYSE:CHA) advanced +5.1% following earnings release a day earlier. China Unicom (HKG:0762) (NYSE:CHU) rose +1.7%.

pre-2010323EETF

Chinese stocks listed in American equity markets have taken advantage of a strong market sentiment. The number of Chinese ADRs trading above their 50-DMA is on the rise, a bullish sign. Another positive development is that the number of overbought Chinese stocks is declining while the number of oversold China stocks remains relatively small. Altogether Chinese ADRs are in a position to ride the wave should U.S. equities continue the march higher.

pre-2010323HK

Most Chinese indices, the Hang Seng Index and the Shanghai Composite, are virtually unchanged from last week, suggesting the market is still looking for direction. Weakness of the global shipping ETF is apparent, stocks like China Cosco (HKG:1919) have been under pressure as their profitability fell in 2009. The rest of the ETFs, key U.S. indices and commodities have been trading in a narrow range as the following chart testifies.

index-2010323

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