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Inflation, global sell-off hits China stocks

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burning_cash August 9, 2011 (Chinavestor) Accelerating inflation and fears that the U.S. will enter into a recession sent China stocks tumbling in Hong Kong on Tuesday. The Hang Seng Index (INDEXHANGSENG:.HSI) fell 1159.9 points or 6.0% in a single day. This was the third largest decline in a decade and the worst except for two days in 2008. Energy, basic material and financial stocks collapsed but airliners gained. China Eastern Airlines (HKG:0670) rose 0.2% while Brilliance China Auto (HKG:1114) gained 3.4% for the day.  Industry leaders led the decline as components of the iShares FTSE/Xinhua China 25 Index (NYSE:FXI) testify. Each and every component of the underlying index for the ETF fell. Small caps were less oversold if components of the Guggenheim China Small Cap ETF (NYSE:HAO) were to serve as a proxy.

Investors remained cool in Shanghai sending the Shanghai Composite Index (SHA:000001) lower a mere 0.7 points or 0.01% for the day. Inflation accelerated in China to 6.5% in July, the most in three years. But policy makers are shorthanded to respond due to the global economic crisis. This helped investors to stay calm in the midst of a global panic.

On the corporate front Mindray Medical (NYSE:MR), a mid-sized Chinese medical equipment maker, and Youku.com Inc. (NYSE:YOKU) reported earnings after the close on Monday.

 

Investors in Asia knew that the day will be difficult for China stocks after the best performing component of the DJIA fell 2.1%. Bank of America (NYSE:BAC), the worst component of the Dow, tumbled over 20%! Investors reacted with a heavy sell-off in Hong Kong, sending the Hang Seng Index (INDEXHANGSENG:.HSI) tumbling at a speed not seen since the 2008 panic. Zijin Mining (HKG:2899), the largest gold miner in China, fell the most among components of the Xinhua China 25 Index. Each and every component of the index fell on Tuesday, boding ill for the iShares FTSE/Xinhua China 25 Index (NYSE:FXI). China Life Insurance Co. (HKG:2628), CNOOC Ltd. (HKG:0883) and Petrochina Co. Ltd. (HKG:0857) were among stocks that fell the hardest.

But component of the underlying index for the Guggenheim China Small Cap ETF (NYSE:HAO) fared better for the decline was less universal among small caps. Stocks that fell outnumbered those that advanced ten to one among components of the index.

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Earnings didn't do much for Chinese ADRs lately for they were caught up in a global sell-off, save for China Yuchai Int. (NYSE:CYD), a stock that tumbled 23.3% on weak numbers. But Mindray Medical (NYSE:MR) reported record numbers after the close. Youku.com Inc. (NYSE:YOKU) is trading higher in pre-market hours following a better than expected second quarter as well. More about earnings at China stock earnings calendar, Aug. 8-12.

Outlook is dim for large cap China Life Insurance (NYSE:LFC) and Petrochina Co. (NYSE:PTR) is components of the Hang Seng Index (INDEXHANGSENG:.HSI) were proxy for ADR trading.



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