September 8, 2011 (Chinavestor) Chinese stocks defied U.S. market sentiment on Thursday and fell hard both in Hong Kong and on the Mainland. While the Dow Jones Industrial Average (INDEXDJX:.DJI) enjoyed a universal rally, the Hang Seng Index (INDEXHANGSENG:.HSI) fell 135.2 points or 0.7%. Likewise, the Shanghai Composite Index (SHA:000001) declined 17.1 points or 0.7%.
The surprise move came after Fitch warned of possible downgrades for both Japan and China citing enormous debt load for the prior and deteriorating loan quality for the latter. Had it not been for a small advance of index heavy weight Industrial and Commercial Bank of China (SHA:601398) and Petrochina Co. Ltd. (SHA:601857), the Shanghai Composite Index (SHA:000001) would have fallen a lot harder. The decline was universal in Shanghai, stocks that fell outnumbered those that advanced ten to one among the 50 largest components of the index. Another factor contributing to the decline in Shanghai was a sobering up from yesterday, when rumors that monetary easing is coming sent the Shanghai Composite Index (SHA:000001) 1.8% higher.
Fitch's warning prompted profit taking thus hurting the Hang Seng Index (INDEXHANGSENG:.HSI) on Thursday. CNOOC Ltd. (HKG:0883), China's largest offshore oil producer, fell 1.0% but Sinopec Shanghai Petrochemical (HKG:0338) and China Eastern Airlines (HKG:0670) declined even more as investors locked in profits from August. Huaneng Power (HKG:0902) was the best performing NYSE cross listed component of the Hang Seng Index (INDEXHANGSENG:.HSI) thanks to a strong bounce back after yesterday's sell-off.
Most Chinese stocks listed in Hong Kong fell as components of he Xinhua China 25 Index testify. This bodes ill for the iShares FTSE/Xinhua China 25 Index (NYSE:FXI), the most liquid Chinese ETF ahead the opening bell.
Looking at Chinese stocks listed in the U.S., Harbin Electric (NASDAQ:HRBN) rose 7.8% on Wednesday. But the stock is overbought to the extremes after a 25% surge in the past five trading day. More technical analysis at Telecoms roll but solar stocks suffer .
If trading in Asia was a proxy for ADRs, outlook is best for Huaneng Power (NYSE:HNP), Petrochina Co. Ltd. (NYSE:PTR) and China Mobile (NYSE:CHL) ahead the opening bell. But CNOOC Ltd. (NYSE:CEO) is likely to suffer as price of oil fell below the $89 mark after a mixed U.S. supply data.