May 13, 2010 (Chinavestor) The sell-off in China may have come to a stop, at least temporarily, as the Shanghai Composite Index (SHA:000001) and the Hang Seng Index (INDEXHANGSENG:.HSI) bounced back off previous lows. The rally was universal in both markets. Each and every component of the SSE-50 Index, tracking the 50 largest Chinese publicly traded companies in Shanghai, advanced while all but one component of the 42 member Hang Seng Index (INDEXHANGSEG:.HSI) rose. Most of the euphoria is foreign related; the debt crisis in Europe seems to be contained and strong earnings from U.S. tech firms suggests the global economy is healing. Cisco Systems (NASDAQ:CSCO) reported a 68% jump in 2010 Q1 net and IBM's Palmisano said the company is going to double its earnings by 2015. Noah Education Holdings (NYSE:NED), China Hydroelectric Corp. (NYSE:CHC) and Silvercorp Metals (NYSE:SVM) reported earnings after the close on Wednesday, suggesting volatility will increase for these China ADRs.
Investors snapped up undervalued energy and consumer stocks. SAIC Motor (SHA:600104), the largest Chinese auto maker, jumped 5.3% while Asia's largest refiner, China Petroleum & Chemical Corp. (SHA:600028) rose +3.1%. But investors remained cautious about real estate and financial stocks; Poly Real Estate (SHA:600048) advanced only +0.5% and Industrial and Commercial Bank of China (SHA:601398), the largest financial institution in the world, rose a mere 0.4%.
Oversold Chinese airliners led the rally in Hong Kong. We wrote last night that "But Chinese airliners continued to suffer, China Eastern Airlines (HKG:0670) (NYSE:CEA) and China Southern Airlines (HKG:1055) (NYSE:ZNH) fell for the fifth day in a row. From this respect CEA's and ZNH's weakness was foretold and came as no surprise. But such a steep fall is unusual, suggesting the bottom is near!"
A slew of Chinese ADRs have reported earnings after the close on Wednesday. Noah Education Holdings (NYSE:NED) reported in-line with expectations but guided lower, suggesting the stock price will come under pressure in the morning. Noah Edu. reports in line but guides lower.
Silvercorp Metals (NYSE:SVM) not only missed EPS estimates by $.03 but guided lower... Given the over 20% run-up before earnings over a month, Thursday is a predictable dive for the company. Silvercorp Metals misses estimates, guides lower...
China Hydroelectric Corp. (NYSE:CHC) reported strong revenue and earnings growth, thanks to an aggressive acquisition binge. Abundant rainfall and higher tariffs in the eastern regions all contributed to a huge jump in both top and bottom lines. China Hydroelectric delivers sound 2010 Q1.
The rest of the Chinese ADR universe looks oversold and ready to rumble. The number of overbought and oversold China stocks is relatively low, testifying that China plays have been trading in a narrow range. But with most of their short term momentum gone already, Chinese stocks are ready to participate in a broad rally for the rest of the week.
Chinese indices and key indicators have started to bounce back up as the following chart testifies. The Hang Seng Index (INDEXHANGSENG:.HSI) is just as oversold as the Shanghai Composite (SHA:000001), giving Chinese ETFs room to the upside.