March 31, 2011 (Chinavestor) Despite unrest in the Middle East and a nuclear incident in Japan, Chinese stocks ended March higher as investors turned their focus on corporate earnings and U.S. economic news. The Shanghai Composite Index (SHA:000001) shed 25.9 points or 0.9% on Thursday but rose 26.9 points or 0.93% for March, registering its second monthly gain in a row.
The Hang Seng Index (INDEXHANGSENG:.HSI) ended March on a high note after advancing 76.1 points or 0.3% on Thursday. The index is up 405.1 points or 1.75% for the month after a daring comeback in the second part of March.
But short term outlook is uncertain for Chinese indices in Asia as investors are looking for clues as earnings come to a close. Downside risk stems from market statistics. The sell-off was universal in Shanghai where stocks that fell outnumbered five to one those that advanced, among the 50 largest components of the Shanghai Composite Index (SHA:000001). Profit taking was the theme of the day on Thursday as March came to an end. Jinduicheng Molybdenum Co., Ltd. (SHA:601958) was the best large cap component of the Shanghai Composite Index (SHA:000001) with a 4.1% surge after reporting over 50% net profit growth. But most stocks fell from resource plays to financials.
Traders in Hong Kong were looking for direction as well. The number of stocks that advanced were exactly the same as those that fell out of the 42 member Hang Seng Index (INDEXHANGSENG:.HSI) on Thursday.
High oil prices continued to hurt upstream oil companies but energy producers and insurance companies shined. Shanghai Petrochemical (HKG:0338), the largest Chinese ethylene maker, fell 4.4% for the day, the most among components of the Hang Seng Index (INDEXHANGSENG:.HSI).
Financials led large cap stocks higher in Hong Kong as components of the most liquid Chinese ETF testify. China Communications Construction Co Ltd (HKG:1800) and Bank of Communications (HKG:3328) rose 2.9%, each, the best performing components of the iShares FTSE/Xinhua 25 China Index (NYSE:FXI).
Small caps did well in Asia as well - stocks that advanced outnumbered those that fell two to one among components of the Guggenheim Small Cap China Fund (NYSE:HAO).
Outlook is best for large energy and selected telecom stocks, if components of the Hang Seng Index (INDEXHANGSENG:.HSI) can serve as proxy for ADR trading. But profit taking is a real possibility on the NYSE, similarly to that of the Shanghai Composite Index (SHA:000001), as the first quarter comes to and end.