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China stocks go sideways on inflation worries

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buy_sell_hold_icon January 6, 2010 (Chinavestor) Chinese stocks traded sideways with a negative bias on Thursday in Asia as investors got concerned about inflation and additional monetary tightening. The Shanghai Composite Index (SHA:000001) fell 14.4 points or 0.5% while the Hang Seng Index (INDEXHANGSENG:.HSI) eked out a small, 28.5 points or 0.1% gain. Twelve components of the iShare FTSE/Xinhua China 25 Index (NYSE:FXI) fell while thirteen advanced, giving no direction for ADR trading for the day. But small cap stocks rose for the most part in Asia as members of the Guggenheim Small Cap China fund (NYSE:HAO) testify. Talking about ETFs: components of the PowerShares Gld Drg Haltr USX China (NYSE:PGJ) were mixed yesterday with China Green Agriculture (NYSE:CGA) falling the most while Qiao Xing Universal Resources, Inc. (NASDAQ:XING), a small molybdenum producer, rose 16.2%.

Back to Asia. Ping An Insurance (SHA:601318), the second largest Chinese insurer, fell the most among large cap listings following news that the company will have to raise up to Yuan 40 billion ($6 billion). Financials and energy stocks weighted down the index as monetary tightening is hurting profitability for the banking sector.

Traders in Hong Kong kept one eye on the U.S. where sound jobs report lifted investor sentiment. Guangshen Rail (HKG:0525) (NYSE:GSH), China Telecom (HKG:0762) (NYSE:CHA) and CNOOC Ltd. (HKG:0883)(NYSE:CEO) were among the best components of the Hang Seng Index (INDEXHANGSENG:.HSI). But Ping An (HKG:0347) fell in Hong Kong as well. 

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Looking at components of key ETFs, outlook is uncertain for large caps. This assumprion is based on the performance of components of the iShares FTSE/Xinhua 25 China Index (NYSE:FXI), a large cap proxy. China Telecom (HKG:0762) (NYSE:CHA) and CNOOC Ltd. (HKG:0883)(NYSE:CEO) advanced 2.2% and 1.6%, repsectivelty, but China Life Insurance (HKG:26268) (NYSE:LFC), the largest Chinese life insurer, fell along the rest of the sector.

Small caps were mixed in Asia this morning as components of the Guggenheim Small Cap China fund (NYSE:HAO) testify. The good news is that not only did more components of the ETF advanced than fell but also those that advanced rose more than those that fell. This suggests outlook for small cap Chinese ADRs is good before the opening bell on Thursday. 

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If components of the Hang Seng Index (INDXHANGSENG:.HSI) and key ETFs such as the iShares FTSE/Xinhua 25 China Index (NYSE:FXI) and the Guggenheim Small Cap China fund (NYSE:HAO) can serve as proxy for ADR trading, outlook is brightest for Guangshen Rail (NYSE:GSH), China Telecom (NYSE:CHA) and CNOOC Ltd. (NYSE:CEO). But China Life Insurance (NYSE:LFC) and China Unicom (NYSE:CHU) are under pressure this morning.



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