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China stocks tumble in Asia as Koreans exchange fire

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Asia_1 November 23, 2010 (Chinavestor) Chinese stocks fell in Asia on Tuesday as investors reacted to three separate negative developments. For one, tensions rose on the Korean peninsula where South Korea returned fire after two civilians died in a North Korean shelling of an island. Another negative development came from Europe where investors wondered what country may be the next weak link in the continent after Ireland. The euro fell against the dollar, sending energy and commodity prices lower. And finally, investors in China turned bearish after the People's Daily, the most influential Chinese newspaper, reported that the government may intervene in commodity and energy prices to keep them affordable, when and where necessary.

The news sent the Shanghai Composite Index (SHA:000001) 56.1 points or 2.0% lower on the MainlandĀ  while the Hang Seng Index (INDEXHANGSENG:.HSI) tumbled 627.9 points or 2.7% in Hong Kong. Key HKEX-NYSE cross listed stock of the day are CNOOC Ltd. (NYSE:CEO), and Petrochina Co. Ltd. (NYSE:PTR) from the energy sector and China Eastern Airlines (NYSE:CEA) from the transportation sector.Each and every member of the iShares/FTSE Xinhua 25 Index (NYSE:FXI) ETF fell in Asia suggesting the bloodbath is here to continue in New York.
Resource, energy, and commodity stocks led the decline in Shanghai where most large cap stocks declined. Yet financial stocks weathered the storm relatively well as most of the bad news have already been incorporated into their stock price. Looking at the five best performing components among the largest Shanghai Composite Index (SHA:000001) members, four are from the financial sector.

But the fall was more universal in Hong Kong where only two components of the 42 member Hang Seng Index (INDEXHANGSENG:.HSI) managed to stay in the black.

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Large cap stocks dominated in the retreat in Asia on Tuesday as components of key ETFs testify. Each and every component of the 25 member iShares/FTSE Xinhua 25 Index (NYSE:FXI) fell in Asia, suggesting investors sold off large caps en messe. But some of the members of the Guggenheim Small Cap China ETF (NYSE:HAO) rose, suggesting investors still found some solace among explosive small caps.

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Index futures point to a lower open suggesting large cap Chinese ADRs are going to suffer the most. If components of the Hang Seng Index (INDEXHANGSENG:.HSI) can serve as a proxy before ADR trading opens, outlook is the bleakest for China Eastern Airlines (NYSE:CEA), CNOOC Ltd. (NYSE:CEO), Petrochina Co. Ltd. (NYSE:PTR), and China Life Insurance (NYSE:LFC).



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