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China stocks dive on credit, inflation woes

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decline_8 December 15, 2010 (Chinavestor) Chinese stocks fell in Asia on Wednesday as Spain was downgraded by Moody's, highlighting tensions within the euro zone. China's inflation accelerated in November prompting fears of more interest rate hikes. The Shanghai Composite Index (SHA:000001) fell 15.7 points or 0.5% while the Hang Seng Index (INDEXHANGSAENG:.HSI) tumbled 455.7 points or 2.0%. Chinese airliners fell hard in Hong Kong suggesting a low open for China Southern Airlines Limited (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA) on the NYSE. Petrochina Co. Ltd. (NYSE:PTR) and CNOOC Ltd. (NYSE:CEO) fell the most among energy plays but China Mobile (NYSE:CHL) was relatively safe.

The decline was universal in both markets; stocks that fell outnumbered those that advanced five to one in Shanghai and eight to one among components of the Hang Seng Index (INDEXHANGSENG:.HSI). While oil majors fell in Hong Kong, like CNOOC Ltd. (HKG:0883) and Petrochina Co. Ltd. (HKG:0857), coal miners firmed up on the Mainland. China Shenhua Energy (SHA:601088), China's largest coal miner, rose 1.4% while China Coal Energy (SHA:601898) was the best performing stock among the 50 largest components of the Shanghai Composite Index (SHA:000001).

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Looking at components of key China ETFs this morning, outlook is bad for the iShares FTSE/Xinhua 25 China Index (NYSE:FXI). Each and every components of the 25 member index fell on Wednesday in Asia, suggesting large caps China ADRS will be under pressure on the NYSE as well. But the decline was not that universal among smaller stocks as components of the Guggenheim Small Cap China ETF (NYSE:HAO) testify.

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If components of the Hang Seng Index (INDEXHANGSENG:.HSI) can serve as a proxy for China ADR trading, outlook is weakest for China Southern Airlines (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA). But energy stocks followed airliners very closely; Petrochina Co. Ltd. (NYSE:PTR) and CNOOC Ltd. (NYSE:CEO) are just as vulnerable as Sinopec (NYSE:SNP), Asia's largest refiner. One of the safest large cap stock is China Mobile (NYSE:CHL) for Wednesday.



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