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China stocks bounce back in Asia, Jan 26

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advance3 January 26, 2011 (Chinavestor) China stocks snapped a two-day losing streak in Shanghai on Wednesday as value investors stepped forward. The Shanghai Composite Index (SHA:000001)  jumped 31.3 points or 1.2% to 2,708.74 while the Hang Seng index (INDEXHANGSENG:.HSI) edged 54.4 points or 0.2% higher. The rally was universal on the Mainland where all but one component of the 50 largest Shanghai listed stocks advanced. But investors kept a close eye on the U.S. in Hong Kong where the Dow Jones Industrial Average (INDEXDJX:.DJI) shed 3.3 points as earnings disappointed. Stock performance in Hong Kong is tied to that of the U.S. given the quasi city state fiscal policy mirrors America's. Nevertheless airliners had their best day for the month with China Eastern Airlines (HKG:0670) (NYSE:CEA) taking the lead with a 5.0% surge. Larger rival China Southern Airlines (HKG:1055) (NYSE:ZNH) rose 4.9% while China's flagship carrier, Air China (HKG:0753) advanced 4.2%. Airliners are looking attractive on valuation ahead of earnings as both global and local airliners' are expected to show strong profits. Energy stocks were mixed with Yanzhou Coal Mining (HKG:1171) (NYSE:YZC) and CNOOC Ltd. (HKG:0883) (NYSE:CEO) ending the day in the red as price of oil subdued.

Trading in Shanghai was different from Hong Kong. Chinese policy makers raised down-payment ratio for second home mortgages to 60%, signalling a potential easing of fiscal policy  by targeting the real estate sector alone. This led to a broad buying of stocks on valuation. China South Locomotive (SHA:601766), a large Chinese railway manufacturer, bounced back up 3.6% after a 3.9% dive a day before. China Cosco Holdings (SHA:601919), the largest container shipper in the world, rose 4.0%, the most among the large cap components of the Shanghai Composite Index (SHA:000001).

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Chinese ETFs were subdued yesterday given the weakness of the Dow Jones Industrial Average (INDEXDJX:.DJI). But outlook is remarkably different on Wednesday for large cap stocks as Xinhua 25 China index suggests. Twenty out of the twenty-five components of the index advanced, boding well for the iShares FTSE/Xinhua 25 China Index (NYSE:FXI). If trading of the index can serve as proxy for ADR trading, outlook is best for China Unicom (NYSE:CHU) and Sinopec (NYSE:SNP) among large cap NYSE listed Chinese stocks.

Chinese small cap stocks fell hard on Wednesday, measured by Small Cap China ETF (NYSE:HAO). But oulook is improved going into Wednesday as most components of the underlying index rose in Asia  this morning.

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Looking at the large cap China stock universe ahead the opening bell on Wednesday, outlook is best for China Eastern Airlines (NYSE:CEA)and China Southern Airlines (NYSE:ZNH). Aluminum Corp. of China (NYSE:ACH) had a strong day in both key Asian markets as well. China Unicom (NYSE:CHU) continues to outperform the rest of the telecoms after reporting the most dynamic 3G growth in December from the sector.



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