Market Wrap: Chinese insurers act as a drag on the Hong Kong market ahead of China Life results

Investors dumped shares of mainland insurers on Tuesday, putting the brakes on the benchmark Hang Seng Index (HSI), with fears growing that leading Chinese insurer China Life (2628.HK) would report disappointing earnings and mainland insurers' A share prices would remain weak.

Jeanny Yu

Published: 4:59pm, 28 Aug 2012

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“Investors should avoid Chinese insurers for the short term,” Jimmy Chu, an investment analyst with CASH Asset Management whose department oversees over HK$100 million, told SCMP.com. “H shares are still traded at a premium to the A shares. The gap still exists.”

China Life lost 1.22 per cent to close at a two-month low of HK$20.30 on Tuesday. Its Shanghai-listed shares closed at 16.72 yuan.

Its weakness was contagious, and its peer, Ping An, (2318.HK), the fourth most actively traded component stock of the HSI on Tuesday, lost 0.61 per cent to HK$57.2.

The HSI barely eked out a gain, closing up 13.13 points, or 0.07 percent, at 19,811.80. The Hang Sang China Enterprises Index, which tracks the performance of Hong Kong-listed China enterprises, fell 22.85 points, or 0.24 per cent to 9,521.77, although observers said the worst might be nearly over.

“Valuations for Chinese insurers have fallen by more than a half from their peaks in Hong Kong, and most of the bad news may now be priced in. We may see a bottoming out once the A-share market shows an improvement,” said Matthew Kwok, vice president of the investment business department at Haitong International Securities.

Foxconn International Holdings Ltd (2038.HK), the world’s biggest contract maker of cell phones, had its worst day since April after posting a record first-half net loss as orders from key client such as Nokia slumped. It dived 8 per cent to HK$2.65.

“We do not see upside, given its (Foxconn’s) remote earnings recovery outlook,” BNP Paribas said in a morning note, cutting its price forecast for the stock to HK$2.8.

BYD (1211.HK), the Chinese electronic car maker backed by billionaire Warren Buffett, ended up 0.3 per cent at HK$13.4, after its chairman, billionare Wang Chuanfu, told reporters at noon that second-half car sales would see a clear turnaround in September or in the fourth quarter.

However, Bank of America Merrill Lynch is sceptical about the stock and said in a morning note that BYD still has “rich valuation and fragile balance sheet”, and cut its price target to HK$12.3.

BYD’s peer Great Wall Motor (2333.HK) extended gains, adding 3.1 per cent to HK$17.38 after Goldman Sachs raised its target price for the stock to HK$19.37. The investment bank said its first-half gross profit margin was higher than expected and a better product mix would ensure strong volume growth and high margins in the second half.

Earnings disappointment also dragged down Chinese consumer stocks. Mainland beverage maker China Huiyuan Juice (1886.HK) closed at HK$2.42, after suffering its biggest single-day loss in five months, after a selloff by investors after the juice-maker sank into red in the first half.

Bawang Group (1338.HK) lost 3.1 per cent to close at HK$0.63, with investors concerned that the company would report a big slide in first-half profit after the market close on Tuesday.

“Consumer issues aren't cheap -- even after the big correction recently. And the sector’s prospects are vague as China’s economy keeps worsening,” Elyse Wang, analyst with Haitong International, told SCMP.com. “Previously, we were expecting a consumer stocks rebound in the fourth quarter, but that seem unlikely to happen based on current data.”

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