November 29, 2010 (Chinavestor) Investors remained cautious on the mainland ahead of more monetary tightening, sending the Shanghai Composite Index (SHA:000001) lower for the second day on Monday. But the Hang Seng Index (INDEXHANGSENG:.HSI) advanced 289.0 points or 1.2% in the last two hours of trading as investors found solace in world economic news.
Outlook is best for the iShares FTSE/Xinhua China 25 Index (NYSE:FXI) among Chinese ETFs since most of its components rose. But small caps in Asia were mixed as components of the Claymore/AlphaShares China Small Cap ETF (NYSE:HAO) testify.
Key ADRs for Monday include oil giant Petrochina Co. Ltd .(NYSE:PTR) and CNOOC Ltd. (NYSE:CEO) from the oil sector. Sinopec Shanghai Petrochemical (NYSE:SHI) rose sharply in Hong Kong as well. Another hot sector is airliners since China Southern Airlines (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA) outperformed the market in Hong Kong as well. But China Telecom (NYSE:CHA) and China Mobile (NYSE:CHL) lacked sentiment in Asia this morning.
Investors in Hong Kong turned bullish in the second part of the trading day after encouraging Black Friday sales numbers from the U.S. and that Ireland's bail out got on track. Volatile Yizheng Chemical (HKG:1033) was the best performing component of the Hang Seng Index (INDEXHANGSENG:.HSI) thanks to a 6.6% advance.Another chemicals company, Sinopec Shanghai Petrochemical (HKG:0338) leaped 5.38% as investors picked up oversold blue chips. Chinese airliners, another sector that got hit hard last week, came back strong with China Southern Airlines (HKG:1055) taking the lead. But smaller rival China Eastern Airlines (HKG:0670) and Air China (HKG:0753) outperformed the broad market as well. The rally was not limited to just a few names; stocks that advanced outnumbered those that fell six to one among components of the Hang Seng Index (INDEXHANGSENG:.HSI).
Despite a strong rally in Hong Kong, investors in Shanghai were mired in Chinese economic news. Investors continue to focus on effects of monetary tightening, fearing more of it could choke off economic growth. The Central Bank raised interest rate in October, the first time since 2007, and ordered banks to increase reserve rations twice in November. Most large cap stocks took a hit on Monday; stocks that fell outnumbered those that advanced five to one among the 50 largest components of the Shanghai Composite Index (SHA:000001). Resource, mining and financial stocks fell the hardest as the dollar gained against major currencies. Jinduicheng Molybdenum Co., Ltd. (SHA:601958) was the hardest hit but investors of Western Mining (SHA:601168) and Zijin Mining (SHA:601899) had not much reason for cheer, either. Industrial and Commercial Bank of China (SHA:601398), the largest financial institution in the world, fell 0.69% dragging down smaller players like Huaxia Bank (SHA:600015) and Shanghai Pudong Development Bank (SHA:600000).
Looking at key Chinese ETFs ahead the opening bell, outlook is real bright for large cap proxy iShares FTSE/Xinhua China 25 Index (NYSE:FXI). Twenty two components rose versus three that fell, suggesting the rally was universal in Hong Kong among large caps. Petrochina Co. Ltd. (NYSE:PTR) rose the most but CNOOC Ltd. (NYSE:CEO), Aluminum Corp. of China (NYSE:ACH) and China Life Insurance (NYSE:LFC) all advanced over 1.5% in Asia this morning.
The advance of small caps were less universal based on the perofrmence of Claymore/AlphaShares China Small Cap ETF (NYSE:HAO) components. Stocks that advanced outnumbered those that fell three to one, half the strength of the large caps.
News on the corporate front include the purchase of Pan-American Energy LLC. by CNOOC Ltd. (NYSE:CEO) and billionaire Bulgheroni family via their investment vehicle. The purchase price is said to be $7.06 billion for the remaining 60% stake of BP's South American venture. Rising oil price helped prospect for Petrochiona Co. Ltd. (NYSE:PTR) ahead the opening bell as well.
Bargain hunters snapped up assets of oversold Chinese carriers in Hong Kong suggesting a strong open is the most likely scenario for China Southern Airlines (NYSE:ZNH) and China eastern Airlines (NYSE:CEA). The former, China's largest domestic airline, reported very robust financials underlying the fundamental strength of the sector.
Looking for large gap ups for Monday, Sinopec Shanghai Petrochemcioal (NYSE:SHI) is the best contender for the title. The stock was the best NYSE corss-;listed component of the Hang Seng Index (INDEXHANGSENG:.HSI) thanbks to a 5.4% advance in the city state.
But Chinese telecoms continue to lack momentum as subscriber growth tamed and 3G related costs dented into profits for China Telecom (NYSE:CHA) and its rivals. China Mobile (NYSE:CHL), the largest mobile carrier in the world, gained just as inch in Hong Kong but oversold China Unicom (NYSE:CHU) got some attraction. Nevertheless the sector have been missing real interest for the past 20 months.