January 21, 2011 (Chinavestor) Chinese indices remained volatile at best in the third week of January as worries about inflation kept bulls at bay. The Shanghai Composite Index (SHA:000001) bounced back up on Friday after a broad sell-off a day before, but ended the week in the red. The Hang Seng Index (INDEXHANGSENG:.HSI) continued to fall in Friday ending the week off by 400 points or 1.65 percent.
China's 2010 GDP growth surprised to the upside, promoting investors to fear more monetary tightening ahead. But earnings in the U.S. helped lift investor sentiment globally, making up for the deficit in confidence in the rest of the world.
China Unicom (NYSE:CHU), the second largest Chinese mobile carrier, reported dynamic smart-phone customer growth and helped lift the sector on Friday. Shares of China Telecom (NYSE:CHA) and China Mobile (NYSE:CHL) advanced in Hong Kong despite an overall market weakness. But Yanzhou Coal (NYSE:YZC) remained one of the weakest link among components of the Hang Seng Index (INDEXHANGSENG:.HSI) after falling 3.3%. China's largest coal miner, China Shenhua Energy (HKG:1088) tumbled 2.0% while China Coal (HKG:1898) fell 2.3% as demand for coal softened.
Trading was differnet in Shanghai where most componenets of the Shanghai Composite Index (SHA:000001) soared. Thursday saw a big sell-off but Friday was just a complete opposite as investors snapped up real estate and industrial stocks ahead of earnings.
Looking at components of key Chinese ETFs this morning, outlook is weak for large cap China stocks based on Hong Kong trading. Most components of the iShares FTSE/Xinhua 25 China Index (NYSE:FXI) fell with energy stocks taking the lead. But the sell-off was far from universal among small caps as components of the Guggenheim Small Cap China ETF (NYSE:HAO) testify.
If components of the Hang Seng Index (INDEXHANGSENG:.HSI) can serve as proxy for ADR trading, outlook is brightest for China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) but energy stocks such as Yanzhou Coal Mining (NYSE:YZC) and Petrochina Co. Ltd. (NYSE:PTR) are in trouble. With index futures pointing to a high open, thanks to sound earnings from GE (NYSE:GE), Chinese ADRs are expected to perform better than trading in Hong Kong would suggest.