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Too much of a good thing sparks sell-off in January

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decline_6 January 20, 2011 (Chinavestor) Thursday was a complete opposite of Wednesday in Shanghai where investors anticipated some easing in monetary tightening but a 10.2% GDP growth sent a different signal. Chinese investors were looking for the end of fiscal tightening but with fast economic growth, chances are slim that will happen. That prompted a broad sell-off sending the Shanghai Composite Index (SHA:000001) 79.6 points or 3.0% lower for the day. The Hang Seng Index (INDEXHANGSENG:.HSI) tumbled 415.9 points or 1.7% for the day.

The sell-off was universal in Shanghai where all but two out of the largest 50 listed companies fell. Stocks that fell outnumbered those that advanced seven to one among components of the Hang Seng Index (INDEXHANGSENG:.HSI) in Hong Kong. Airliners and coal stocks led the decline punishing China Southern Airlines (HKG:1055) and Air China (HKG:0753) the most. China Shenua Energy (HKG:1088), the largest Chinese coal miner, fell 4.0% hurting the rest of the sector.

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Outlook is dim for Chinese large caps ahead of the NYSE open as most components of the Xinhua 25 China Index fell. Outlook for small caps is not much better albeit the sell-off was less universal among components of the Guggenheim Small Cap China ETF (NYSE:HAO).

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If components of the Shanghai Composite Index (SHA:000001) and the Hang Seng index (INDEXHANGSENG:.HSI) can serve as proxy for ADR trading, outlook is dimmest for airliners and coal producers. But China Unicom (NYSE:CHU) may outperform the market thanks to a sound 3G subscriber growth in December.



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