Market Outlook

Hang Seng Index closed down 1.3% at 18,951 last Friday amid concerns about Greece’s exit from the euro zone and a slowdown in the PRC economy. China’s GDP growth may slow from 8.1% in 1Q12 to 7.5% in 2Q12 according to forecast from State Information Center. Companies with exposure to Europe faced selling pressure. Hutchison (13), HSBC (5) and Esprit (330) tumbled 2.4%, 3.1% and 4.1% respectively. Port operators like China Merchants (144) and Cosco Pacific (1199) shrank 1.5%-2.3%. Utilities stocks such as CLP Holdings (2) and Power Assets (6) climbed 1.0%-1.7% reflecting a reduction in investors’ risk appetite. HSCEI declined 1.3% led by automobile, heavy machinery and telecom equipment manufacturers. Dongfeng Motor (489), Weichai Power (2338), ZTE Corporation (763) and Zoomlion (1157) slid 3.9%-5.4%. The eight largest Chinese banks, four largest Chinese insurers and ten largest Chinese property developers all decreased with an average loss of 1.9%, 2.1% and 2.4% respectively. Railway, cement and shipping stocks saw a strong rebound in the afternoon session. Anhui Conch (941), CNBM (3323), China Cosco (1919) and China Railway Construction (1186) advanced 2.7%-3.7%.

Hang Seng Index has been technically oversold with 9-day RSI at 19, giving an excellent buying opportunity for long term investors. We recommend an overweight position on large cap China stocks.