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China shares continue the rally in Asia on Monday

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strong1 March 29, 2010 (Chinavestor) Shares of Chinese companies experienced the widest rally in 2010 in Shanghai on Monday spurred by investor optimism. Each and every component of the SSE-50 Index, comprised of the fifty largest publicly traded companies, advanced in the Mainland's largest bourse. Chinese investors are upbeat following the introduction of advanced trading tools in Shanghai, such as index-futures trading, short selling and margin trading. Expectations run high that trading volume will increase helping large cap stock prices to appreciate. Additionally, first quarter Chinese GDP growth is expected to be around 12%, higher than anticipated.

The Shanghai Composite Index (SHA:000001) jumped +64.08 points or +2.1% to 3,123.80 while the Hang Seng Index (INDEXHANGSENG:.HSI) advanced +184.32 points or +0.9% to 21,237.43 at the close.

Chinese insurers and financial institutions outperformed in anticipation of a longer term rally; shares of the largest Chinese insurer, China Life Insurance (SHA:601626) (HKG:2628) (NYSE:LFC), rose 3.6% in Shanghai and +2.1% in Hong Kong. Smaller rival Ping An Insurance (SHA:601318) (HKG:2318) advanced +4.1% in Shanghai and +2.1% in Hong Kong. Insurers in China derive ~15% of their net income from investment gains, tied to the performance of broader indices such as the Shanghai Composite Index (SHA:000001).

Chinese coal miners outperformed in Hong Kong. Shares of China Shenhua (HKG:1088), the largest Chinese coal producer, rose +3.2% while smaller rival Yanzhou Coal (HKG:1171) (NYSE:YZC) advanced +3.9%. Weiqiao Textile (HKG:2698) jumped +14.5%. Resource, metal plays outperformed as well. But shares of Aluminum Corp. of China (HKG:2600) (NYSEL:ACH) fell -0.3% after the release of the 2009 Annual Report. Shares of Asia's largest refiner, Sinopec (HKG:0386) (NYSE:SNP), fell -0.6% following the 2009 Annual report. The company warned of refining challenges ahead as competitors expand capacity. Sinopec Shanghai Petrochemical (HKG:0338) (NYSE:SHI) rose +0.66% after 2009 annual results. China stock earnings calendar March 29 - April 2, 2010.  

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Index futures point to a higher open for U.S. capital markets as Greece's ills look contained and the U.S. kept her AAA rating from S&P. Smaller cap China stocks will get a boost from overall market sentiment while larger cap China plays are expected to benefit from Shanghai related positive longer term outlook.

There is a lot of upside potential left for Chinese stocks for Monday due to the loss of short term momentum lately. The number of Chinese ADRs trading above their 20-DMA and 50-DMA has fallen significantly form last week. The number of overbought China plays is sharply down from last week while the number of oversold ones are on the rise.

Expect shares of China Life Insurance (NYSE:ACH), Yanzhou Coal (NYSE:YZC) and Chinese telecoms to do well on Monday.

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The uptrend on the Shanghai Stock Exchange is caught by the monitor and the lack of momentum is about to change for the Morgan Stanley China ETF (NYSE:CAF). The uptrend in U.S. treasuries is about to change as the dollar fell on Greece's financial improvement.

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