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China stocks tumble in Asia on stimulus exit concern

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decline_7 March 25, 2010 (Chinavestor) Chinese stocks dragged major indices lower in Asia on Thursday. The Hang Seng Index (INDEXHANGSENG:.HSI) fell -230.07 points or -1.1% to 20,788.05 as weak U.S. new home sales and uncertainties surrounding China's stimulus exit spooked investors. The Shanghai Composite Index (SHA:000001) fell -37.63 points or -1.23% to 3,019.18 on similar concerns. Sell-off was universal in both markets, stocks that fell outnumbered those that advanced eight to one in Hong Kong and twenty five to to two in Shanghai.

Autos and stimulus relates stocks fell the most in both markets. Brilliance Auto (HKG:1114) fell -4.4% in Hong Kong while SAIC Motor Co. (SHA:600104), the largest Chinese auto maker and GM partner, fell -2.4% in Shanghai. China Unicom (HKG:0762) (NYSE:CHU) continued to slide as earnings disappointed. China telecom industry in 2009. Iconic Li & Fung (HKG:0494), a key Wal-Mart supplier, fell -11% on worse-than-expected 2009 Q4 profits. Baoshan Iron & Steel (SHA:600019), the world's largest steel maker, outperformed smaller rivals. Petrochina (SHA:601857) (NYSE:PTR) shed -0.9% in Shanghai but fell twice that much in Hong Kong (HKG:1857) after reporting a 9.7% decline in 2009 net profit. China's oil triumvirate, CNOOC Ltd. (NYSE:CEO) and China Petroleum & Chemical Corp. (NYSE:SNP) are going to report later this week. China stock earnings calendar March 22-26, 2010.

Investors found some solace in Chinese airliners. Shares of China Eastern Airlines (HKG:0670) (NYSE:CEA) and China Southern Airlines (HKG:1055) (NYSE:ZNH) bounced back up in Hong Kong, advancing +4.8 and 0.9%, respectively.

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Chinese banks will continue be on focus for the week. Bank of China (HKG:3988) reported record net income, matching that of Goldman Sachs (NYSE:GS) for 2009. Bank of China record lending, record profit. China's largest financial institution, Industrial and Commercial Bank of China (HKG:1398), is going to report after the close today followed by China Construction Bank (HKG:0939) tomorrow.

Chinese companies listed in American exchanges have lost a significant amount of momentum during the week. The number of Chinese ADRs trading above their 20-DMA and 50-DMA has declined, the number of overbought China stocks is down to one.

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Technical indicators spotted the downtrend of Chinese indices - the Hang Seng Index (INDEXHANGSENG:.HSI) and the Shanghai Composite Index (SHA:000001). The difficulty China is facing is stemming from the $586 billion strong stimulus package that engineered China to weather the global economic crisis well. Now the country is facing a difficult task to execute a stimulus exit strategy while fighting inflation, preventing asset price bubbles and keeping growth humming, all on the same time. With oil major and banks reporting this week, investors play it safe by stepping to the side.

Another important development to note on the following technical screen is the huge upswing in U.S. treasuries. The interest is due to the strength of the dollar as the ebbs of euro mount. Greece's ills are still present with the combination of Portugal and may be Spain. The euro talk at the IMF didn't help the euro either.

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