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China stocks decline following rate hike

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decline_6 July 6, 2011 (Chinavestor) Stocks retreated in Asia on Wednesday after the Chinese Central Bank increased lending and deposit rates by 0.25%. This was the third such hike for the year as China is battling inflation. Investors turned defensive following the move as many fear higher rates will choke off growth. Oil fell on the news, hurting the energy sector.The Hang Seng Index (INDEXHANGSENG:.HSI) fell 230.4 points or 1.0% ending the day at the bottom. But the Shanghai Composite index (SHA:000001) made a comeback by the end of the day, sliding 5.9 points or 0.2%. Sinopec Shanghai Petrochemical (HKG:0338) (NYSE:SHI) was the best performing component of the index as lower oil translates better margins for upstream oil companies. China Shenhua Energy (HKG:1088), the largest Chinese coal miner, fell 1.8% along with CNOOC Ltd. (HKG:0883) (NYSE:CEO) and Petrochina Co. Ltd. (HKG:0857) (NYSE:PTR).

 

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Large cap stocks led the decline in Hong Kong. All but two components of the 25 member iShares FTSE/Xinhua China 25 Index (NYSE:FXI) advanced and the rest fell. This bodes ill for the ETF before the opening bell on Wednesday.

Outlook is better for small caps if components of the Guggenheim China Small Cap ETF (NYSE:HAO) can serve as proxy. Stocks that fell outnumbered those that advanced three to one among 162 components of the ETF.

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Small cap Chinese ADRs remained volatile on Tuesday, a dynamics that is to stay for Wednesday. Stocks that moved over 10% were all under $250 million except for Qihoo 360 Technology (NYSE:QIHU). Chinese stocks with the most decline were all from the small cap universe as well.

Looking at Asian trading before the opening bell, outlook is dim for Aluminum Corp. of China (NYSE:ACH), Yanzhou Coal Mining (NYSE:YZC) and China Life Insurance (NYSE:LFC). Sinopec Shanghai Petrochemical (NYSE:SHI) is among the best large cap Chinese ADRs ahead the opening bell.



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