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China stocks bounce back after oil eases

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advance4 March 8, 2011 (Chinavestor) Easing oil prices and steep falls in previous sessions buoyed the Hang Seng Index (INDEXHANGSENG:.HSI) on Tuesday. Hong Kong's benchmark surged 398.5 points or 1.7%, far surpassing the Shanghai Composite Index (SHA:000001) for the day. But the Mainland's gauge didn't have to make up lost ground but rather continued to inch closer to the 3,000 range.Large caps led the rally in Hong Kong boding well for the most liquid Chinese ETF the iShares FTSE/Xinhua 25 China Index (NYSE:FXI).

The rally in Hong Kong was universal, stocks that advanced outnumbered those that fell six to one among the 42 members of the Hang Seng Index (INDEXHANGSENG:.HSI). Airliners and upstream oil companies surged as price of oil fell. Hong Kong listed H-shares of NYSE cross-listed Sinopec Shanghai Petrochemical (NYSE:SHI) and Sinopec (NYSE:SNP), were among the best performing components of the Hang Seng Index (INDEXHANGSENG:.HSI),  advancing 4.8% and 3.6%, respectively. H-shares of China Eastern Airlines (NYSE:CEA) and China Southern Airlines (NYSE:ZNH) jumped 2.4%, each.

Investors were digesting the rally of the Shanghai Composite Index (SHA:000001) on the mainland. The index inched closer to the 3,000 level thanks to the advance of small cap stocks. But most large components of the index fell, highlighting the profit taking that hurt short term outlook for the index.

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It is obvious that most large caps surged in Hong Kong after looking at components of key ETFs on Tuesday. All but one component of the 25 member Xinhua 25 China Index advanced in the city state, boding well for the iShares FTSE/Xinhua 25 China Index (NYSE:FXI). Besides energy, telecom stocks performed the best in Hong Kong as sector rotation helped lift shares of China Unicom (HKG:0762).

The advance was less universal among small caps as components of the Guggenheim Small Cap China ETF (NYSE:HAO) trestify. Over 100 small caps advanced but 60 fell among components of the small cap proxy.

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Earnings will remain in focus for Chinese ADRs on Tuesday. Home Inns & Hotels Management (NASDAQ:HMIN) and Perfect World (NASDAQ:PWRD) reported after the close on Monday. There are three Chinese companies reporting before the opening bell today, including Simcere Pharma (NYSE:SCR) and Focus Media Holdings (NASDAQ:FMCN).

For more upcoming earnings, visit the weekly earnings calendar.

If components of the Hang Seng Index (INDEXHANGSENG:.HSI)  can serve as proxy ahead of ADR trading, outlook is best for Sinopec Shanghai Petrochemical (NYSE:SHI) and Sinopec (NYSE:SNP) as price of oil subsided. But oversold Chinese airliners are also about to benefit, including China Eastern Airlines (NYSE:CEA) and China Southern Airlines (NYSE:ZNH).



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