June 7, 2011 (Chinavestor) Chinese stocks advanced in Shanghai but followed U.S. indices lower in Hong Kong on Tuesday. The Shanghai Composite Index (SHA:000001) rose 17.5 points or 0.6%, but more tellingly, 90% of large cap stocks advanced as bulls grabbed the horn of the market. With financial troubles brewing around the world, chances of additional monetary tightening are slim. Fear of fiscal tightening have hurt investor sentiment for most of the year, keeping stocks attractive on valuation.
But things are different in Hong Kong where investors keep eye on the U.S. The Hang Seng Index (INDEXHANGSENG:.HSI) fell 80.9 points or 0.4% as uncertainly about global recovery looms. Lack of direction is well depicted by stocks from the coal industry. China Coal (HKG:1898) and Yanzhou Coal (HKG:1171) were among the best components of the Hang Seng Index (INDEXHANGSENG:.HSI), but China Shenua Energy (HKG:1088), the largest coal miner, fell the most among components of the Xinhua 25 China Index. This bodes ill for the iShares FTSE/Xinhua 25 China Index (NYSE:FXI), a market cap weighted ETF.
U.S. stocks fell for the fourth day in a row on Monday as investors worry that the U.S. economic recovery wasn't genuine. Weak housing and jobs reports underline the fundamental problem the world largest economy is facing. Weak sentiment hurt stocks in Hong Kong, a city whose currency and interest rates are pegged to the dollar.
But outlook for large cap Chinese ETFs is improving. Stocks that fell were just about the same as those that advanced among the 25 components of the iShares FTSE/Xinhua China 25 Index (NYSE:FXI). But outlooks is different for small cap proxy Guggenheim Small Cap China ETF (NYSE:HAO) on Tuesday morning. Stocks that fell outnumbered those that advanced two to one among 160 plus components of the ETF.
Small Cap Chinese ADRs continue to be volatile with a negative bias. It was China Marine Food (AMEX:CMFO) that advanced almost double digit in percentage terms while nine stocks that fell just as much or more on Monday.