February 18, 2011 (Chinavestor) If anybody had doubts about driving forces of the two most prominent China stock markets in Asia, Friday proved it again: investors in Hong Kong watch western markets very closely while Shanghai is consumed by domestic news. The Shanghai Composite index (SHA:000001) fell 27.0 points or 0.9% following the increase in bank reserve ratio, just a few weeks after the latest interest rate rise. Yet the Hang Seng Index (INDEXHANGSENG:.HSI) surged 293.4 points or 1.2% the same time, with all but three components of the underlying index of the iShares FTSE/Xinhua 25 China Index (NYSE:FXI) on the rise. Friday was another sound day for large cap China stocks in Hong Kong.
H-shares of NYSE cross-listed China Eastern Airlines (NYSE:CEA), China Unicom (NYSE:CHU), and Sinopec Corp. (NYSE:SNP) rose the most among NYSE listed large cap stocks in Asia this Friday.
Yingli Green Energy (NYSE:YGE), the first Chinese solar maker to report earnings, is up in pre-market trading as the company beat estimates. Soufun Holdings (NASDAQ:SFUN), another highly liquid Chinese company, reported before the open as well.
But investors focused on monetary tightening and fears of slower economic growth on the Mainland, pressuring the Shanghai Composite Index (SHA:000001). China Pacific Insurance (SHA:601601) fell the most among insurers whose profitability is partially tied to the performance of the Shanghai Composite Index (SHA:000001). China Life Insurance Co. (SHA:601628), the largest Chinese insurer, fell 1.05% as the company derives approx. 15% of its net income from investment related activities.Jiangxi Copper (SHA:600362), the largest producer of the metal in China, fell 2.7% as demand for construction materials is expected to ease due to slower growth.
Looking at components of key Chinese ETFs, outlook remained sound for large caps. Most components of the iShares FTSE/Xinhua 25 China Index (NYSE:FXI) advanced in Asia with Ping An Insurance (HKG:2318) taking the lead. China Unicom (NYSE:CHU), the second largest Chinese mobile carrier, rose 2.6% while Sinopec Corp. (NYSE:SNP), Asia's largest refiner by volume, advanced 2.3%. China Eastern Airline (NYSE:CEA), though not a component of the iShares FTSE/Xinhua 25 China Index (NYSE:FXI), surged 3.6% on Friday.
Outlook for Chinese small caps is almost as good as it is for large players. Stocks that advanced outnumbered those that fell two to one among the 160 plus components of the Guggenheim Small Cap China Fund (NYSE:HAO).
Friday is going to be a relatively busy day on the corporate front for Chinese stocks. Yingli Green Energy (NYSE:YGE), a mid-sized Chinese solar maker, reported earnings before the open. SouFun Holdings (NASDAQ:SFUN), a very liquid NASDAQ listed blue-chip, reported before the open as well. Yucheng Technologies (NASDAQ:YTEC) and China Medical Technologies (NASDAQ:CMED) are on the corporate earnings menu for today as well.
If components of the Hang Seng Index (INDEXHANGSENG:.HSI) can serve as proxy for ADR trading, outlook is best for China Eastern Airlines (NYSE:CEA) and China Unicom (NYSE:CHU), but Aluminum Corp. of China (NYSE:ACH) and China Life Insurance (NYSE:LFC) is expected to suffer.