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China tightening mitigates DJIA bulls

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Asia_2 November 19, 2010 (Chinavestor) Despite a spectacular day for U.S. equities last night, both key Chinese indices in Asia failed to gain traction. All but one component of the Dow Jones Industrial Average (INDEXDJX:.DJI) rose on Thursday but the Shanghai Composite Index (SHA:000001) gained a mere 23.1 points while the Hang Seng Index (INDEXHANGSENG:.HSI) actually fell. The weakness in Asia is due to two problems: for one Chinese regulators announced further rising the bank reserve ratio by 50 bps, tightening money supply. For two, Ireland's bailout plan hit resistance as details surface, rattling nerves of European investors. A weaker Euro means stronger dollar, lower oil and commodity prices, thus hurting energy and resource plays.

Key ADRs for today include China Unicom (NYSE:CHU), Aluminum Corp. of China (NYSE:ACH) and Huaneng Power International (NYSE:HNP) with potential downside. But outlook is bright for China's largest oil producer Petrochina Co. Ltd. (NYSE:PTR) and its offshore oil specialist CNOOC Ltd. (NYSE:CEO) besides airliner China Southern Airlines (NYSE:ZNH).

Traders in Shanghai focused on Chinese domestic news, e.g. monetary tightening, selling-off financials and energy stocks. China Coal Energy (SHA:601898), the second largest coal producer in China, fell the most among the 50 largest components of the Shanghai Composite Index (SHA:000001). China Shenhua Energy (SHA:601088), the largest coal miner of the country, fell as growth of energy consumption may slow. Petrochina Co. Ltd. (SHA:601857), the largest oil producer, shed 1.0%. China Citic Bank (SHA:601998) and China Merchants Bank (SHA:600036) fell the most among large cap components of the Shanghai Composite Index (SHA:000001) as well. But larger financials shrugged off the reserve ration increase by the end of the day suggesting most of the bad news have already been incorporated in their stock price. ICBC (SHA:601398) kicked off a 7% increase from morning session lows ending the day 5% higher.

Chinese airliners were among the best components of the Hang Seng Index (INDEXHANGSENG:.HSI) in Hong Kong for the day. China Southern Airlines (HKG:1055) advanced 3.4% while Air China (HKG:0753) rose 2.9%. China Eastern Airlines (HKG:0670) eked out a 0.43% gain. Oil stocks advanced in Hong Kong as well. Petrochina Co. Ltd. (HKG:0857) rose 0.94% while CNOOC ltd. (HKG:0883) surged twice of that. Yanzhou Coal Mining (HKG:1171) (NYSE:YZC), a NYSE cross-listed coal miner, rose 0.45%.

Stocks on the slide among componetns of the Hang Seng Index (INDEXHANGSENG:.HSI) included China Unicom (HKG:0762) and Aluminum Corp. of China (HKG:2600). Huaneng Power International (HKG:0902) shed 1.4% while Huangshen Rail (HKG:0525) (NYSE:GSH) fell 1.3%.

pre_20101119_index

Looking at the performance of the components of key Chinese ETFs, most large caps fell casting shadow over the performance of the iShares FTSE/Xinhua 25 Index (NYSE:FXI). Huaneng Power (HKG:0902), China UnicomĀ  (HKG:0762) and Aluminum Corp. of China (HKG:2600) fell the most but oil producers and insurance company Ping An Insurance (HKG:2318) helped mitigate the fall. Small cap investors will have to live with increased volatility as components of the Guggenheim China Small Cap ETF (NYSE:HAO) testify.

Pre_20101119_etf

If components of the Hang Seng Index (INDEXHANGSENG:.HSI) and the Shanghai Composite Index (SHA:000001) were proxies for ADR trading, investors have no clue where energy stocks are going to go. Petrochina (NYSE:PTR) rose in Hong Kong but fell in Shanghai. Hong Kong listed China Unicom (NYSE:CHU) and Aluminum Corp. of China (NYSE:ACH) are expected to fall along with Huaneng Power International (NYSE:HNP). China's offshore oil producer CNOOC Ltd. (NYSE:CEO) has a positive bias while China Southern Airlines (NYSE:ZNH) has the best outlook for Friday.



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