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China stocks fall on slower growth outlook

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forecast_down May 4, 2011 (Chinavestor) Chinese stocks extended a slide on Wednesday after Wen Jiabao, China's premier, said taming inflation is critical. More fiscal tightening will hurt growth, investors thought, sparking a sell-off. The Hang Seng Index (INDEXHANGSENG:.HSI) fell 309.3 points or 1.3% after a broad sell-off. Stocks that fell outnumbered those that advanced five to one among 42 members of the index. Large caps took a beating, only two out of 25 components of the Xinhua 25 Index managed to eke out some gains, boding ill for the iShares FTSE/Xinhua 25 China Index (NYSE:FXI).

The sell-off was just as broad in Shanghai where stocks that fell outnumbered those that advanced ten to one among the 50 largest components of the Shanghai Composite Index (SHA:000001). The index itself fell 65.3 points or 2.3% for the day. Resource and industrial stocks fell the most on anticipation that slower growth will choke off demand.

Jiangxi Copper (SHA:600362), the largest producer of the metal, tumbled the most among the 50 largest components of the Shanghai Composite Index (SHA:000001). SAIC Motor (SHA:600104), the largest Chinese car manufacturer, fell 5.6% just like China Shenhua Energy (SHA:601088), the largest Chinese coal miner.

But Guangshen Railway Co (HKG:0525) (SHA:601333) advanced in both key Asian markets on Wednesday, boding well for its NYSe listed ADR, NYSE:GSH. Shares of the company advanced 5.3% on Wednesday and over 10% for the week in Hong Kong, making it the best performing component of the Hang Seng Index (INDEXHANGSENG:.HSI)  for the time being.

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NYSE listed Chinese ETFs experienced a slide on Tuesday and may extend it to Wednesday. The iShares FTSE/Xinhua 25 China Index (NYSE:FXI) fell 1.2% on Tuesday but with most of its components in the red in Asia the next day, outlook remained dim for the time being. Small cap proxy Guggenmeim China Small Cap Fund (NYSE:HAO) may be a better bet for the day, if trading in Asia can serve as a proxy. Stocks that fell outnumbered those that advanced two to one among 160 plus members of the index, a much better ratio that that of large caps. 

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Chinese internet stocks fell hard on Tuesday. Some argue that Renren's upcoming IPO, the Chinese version of Facebook, is behind negative money flows. If components of the Hang Seng Index (INDEXHANGSENG:.HSI) can serve as proxy for ADR trading, outlook is best for Guangshen Railway (NYSE:GSH). But China Unicom (NYSE:CHU), China Southern Airlines (NYSE:ZNH) and CNOOC Ltd. (NYSE:CEO) are expected to gap down. With most of its components in the free fall in Asia, outlook is dim for iShares FTSE/Xinhua 25 China Index (NYSE:FXI) as well.



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