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Tightening Hurts China Stocks Jan 14

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disappopint January 14, 2011 (Chinavestor) News that Chinese authorities raised bank reserve ration by another 0.5% sent mainland stocks tumbling. The Shanghai Composite Index (SHA:000001) fell 37.0 points or 1.3% led by resource and metal stocks as demand for construction and related industries got elusive. Aluminum Corp. of China (SHA:601600) fell 1.97% along the rest of the sector. Insurers suffered as outlook for the rest of the market worsened. China Life Insurance (SHA:601626) and Ping An Insurance (SHA:601318), China's two largest insurers, fell 1.8% and 1.9%, respectively. Had it not been for index heavy weight PetroChina Company Limited (SHA:601857) and Industrial and Commercial Bank of China (SHA:601398), stocks that managed to advance 0.3% and 0.2%, respectively, the index would have tumbled a whole lot more.

But the Hang Seng Index (INDEXHANGSENG:.HSI) weathered the storm well by eking out a small, 44.3 points or 0.2% gain. Hong Kong investors keep a close eye on the U.S. for clues as interest rates are tied to the greenback, shielding it from monetary tightening on the mainland. China Unicom (HKG:0762), the second largest Chinese mobile operator, rose for the second day in a row trailing Sinopec Shanghai Petrochemical (HKG:0338) whose shares advanced 3.6% for the week.

pre_2011114

Most large cap stocks fell in hong Kong, as components of the iShares FTSE/Xinhua 25 China Index (NYSE:FXI) testify. But the outlook is less dim for small caps where the components of the Guggenheim Small Cap China ETF (NYSE:HAO) were evenly distributed among those that advanced and those that fell.

pre_2011114_etf

If components of the Shanghai Composite Index (SHA:000001) can serve as proxy for ADR trading, outlook is best for large, integrated oil companies such as Sinopec (NYSE:SNP) and PetroChina Company Limited (NYSE:PTR). But Aluminum Corp. of China (NYSE:ACH) is expected to fell a pinch as well as China Life Insurance (NYSE:LFC). China Unicom (NYSE:CHU), a Hang Seng Index (INDEXHANGSENG:.HSI) component, as well as Sinopec Shanghai Petrochemical (NYSE:SHI) are well positioned before the opening bell though.



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