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Earnings, upgrade lift China stocks in Asia

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advance4 March 24, 2010 (Chinavestor) Shares of Chinese companies advanced in Hong Kong and Shanghai following a strong market day in the U.S. a day before, earnings and analysts upgrades. Bank of China (SHA:601988) jumped +1.7% on better than expected revenue and earnings. Bank of China record lending, record profit. Shares of Industrial and Commercial Bank of China (SHA:601398) advanced +0.6% as earnings prospects for the largest Chinese banks improved. But resource and metal stocks continued to suffer; shares of Baoshan Iron & Steel (SHA:6000019), the largest steel maker in the world, fell -2.2% on Wednesday marking the third day of decline in a row. Jiangxi Copper (SHA:600362), the largest Chinese maker of the metal, shed -1.1%. The Shanghai Composite Index (SHA:000001) advanced +3.68 points or +0.12% to 3,056.81 at the close.

Analyst upgrade propelled shares of China Cosco (HKG:1919) +3.6% higher in Hong Kong. Goldman Sacks upgraded the world's largest container shipping company to buy. Shares of China Unicom (HKG:0762) (NYSE:CHU) fell -1.50% as fourth quarter earnings disappointed. China Unicom 2009 financials disappoint. Huaneng Power Int. (HKG:0902) (NYSE:HNP) fell -1.3% on Wednesday as investors digested 2009 financials, reported a day earlier. Huaneng Power back to profit, softer outlook. Chinese airliners continued to suffer after heavy losses a day before. Prospects for an imminent yuan revaluation are slim as the U.S. puts more pressure in China and Wen Jiabao, China's Premier, publicly condemned such efforts. Since most debt of airliners is denominated in dollars (purchase of aircraft)  while their income in yuan, the currency revaluation has a significant impact on the profitability of the sector. This explains the additional and unusual volatility experienced in 2009. Nevertheless the Hang Seng Index (INDEXHANGSENG:.HSI) advanced +20.84 points or 0.1% to 21,008.62 at the close.

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Out look for Chinese shares listed in American exchanges: Chinese airliners are expected to suffer on the NYSE; China Southern Airlines (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA) will be under pressure on Wednesday. Shares of China Unicom (NYSE:CHU) are expected to fall on worse than expected 2009 Q4 results. Quarterly profits fell to RMB222 million vs. RMB 1.2 billion expected or RMB2.3 billion in previous quarter. Shares of Huaneng Power (NYSE:HNP) are expected to show weakness as well. While the company reported strong revenue and net income growth, outlook is less bright. The company said that the number of power plans coming online in 2010 will exceed increase in electricity demand, putting pressure on power plant utilization.

Chinese ADRs have lost short term momentum lately. The number of Chinese stocks trading above their 20-DMA fell from last week. The number of overbought China stocks fell from eight to one from last week, another sign of diminishing momentum.

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Chinese shares have been trading in a narrow range. Looking at key indices, ETFs and commodities it is apparent that Chinese stocks haven't taken full advantage of the strength of U.S. capital markets. Fear from China's exit from stimulus, accelerating inflation, asset price bubbles and a shrinking trade surplus have kept Chinese equities at bay.

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