July 26, 2011 (Chinavestor) China stocks bounced back off on Tuesday after a heavy sell-off a day before. The Shanghai Composite Index (SHA:000001) advanced 14.3 points or 0.5% thanks to a strong showing of resource stocks. But railway companies continued to deteriorate following the deadly bullet train crash over the weekend. The mood was optimistic in Hong Kong where stocks that advanced outnumbered those that fell five to one among 42 components of the Hang Seng Index (INDEXHANGSENG:.HSI). Part of the optimism came after Baidu.com Inc. (NASDAQ:BIDU) reported earnings, beating estimates and guiding higher. China Eastern Airlines (HKG:0670) rose 3.0% on top of Monday's 4.8% surge. Airliners got a boost after the train crash, helping lift shares of Air China (HKG:0753) and China Southern Airlines (HKG:1055) as well. Guangshen Railway (HKG:0525) bounced back 2.7% after a 5.9% dive a day before. Buffet backed electric car maker BYD Company (HKG:1211) rose 2.1%, moving it among the top five components of the Hang Seng Index (INDEXHANGSENG:.HSI).
Stocks surged in the afternoon session in Shanghai, sending key indices higher for the day. Resource and energy stocks led the advance while railway stocks continued to suffer. Petrochina Co. Ltd. (SHA:601857), the largest oil producer in China and a Shanghai Composite Index (SHA:000001) heavy weight, rose 2.3%. Jiangxi Copper (SHA:600362) the largest producer of the metal in China, surged 3.0% while Aluminum Corp. of China (SHA:601600), the third largest aluminum maker of the world, jumped 1.5%. But China South Locomotive (SHA:601766), one of the main manufacturers of the bullet train, fell 3.6% on top of a 8.9% dive a day beofre. The stock was the worst performing large cap component of the Shanghai Composite Index (SHA:000001) for two days in a row.
While Chinese ETFs fell on Monday, outlook improved for Tuesday. For one, corporate earnings look good for the internet sector after Baidu.com Inc. (NASDAQ:BIDU) reported better than expected second quarter earnings. Number of the company blew past already high expectations, highlighting the fact that China's internet growth remains robust.
All but three components of the iShares FTSE/Xinhua China 25 Index (NYSE:FXI) advanced in Asia, boding well for the most liquid Chinese EF ahead the opening bell. But optimism was not limited to large caps. Stocks that advanced outnumbered those that fell five to one among the 162 components of the Guggenheim China Small Cap ETF (NYSE:HAO) as well.