Chinese Stocks to Extend Slump, Mizuho Securities Says: Technical Analysis - Bloomberg

Enlarge image The MSCI China Index has tumbled 25 percent this year as the Chinese government stepped up measures to cool inflation that’s at the highest level in almost three years.

The MSCI China Index has tumbled 25 percent this year as the Chinese government stepped up measures to cool inflation that’s at the highest level in almost three years. Photographer: Qilai Shen/Bloomberg

Sept. 19 (Bloomberg) -- Todd Martin, an Asia equity strategist at Societe General SA, talks about regional stocks. Martin speaks from Hong Kong with Owen Thomas on Bloomberg Television's "First Look". (Source: Bloomberg)

Chinese stocks, as measured by the MSCI China (MXCN) Index, may extend a slump that has made the nation’s equities the worst-performing among the so-called BRIC nations, according to technical analysis by Mizuho Securities Asia Ltd.

The MSCI China, which mostly tracks Hong Kong-traded shares of Chinese companies, slid 6 percent yesterday to 50.12. The gauge may fall to between 36 and 45 “to complete the bear market,” Chris Roberts, a Hong Kong-based technical analyst, wrote in a Sept. 22 report. The index’s moving average convergence/divergence indicator, or MACD, had fallen below zero, which is “normally bearish,” the report said.

“Given that for the past four years the October-November period has either marked a top or a bottom, we would be alert for at least an intermediate low in that time frame,” the report said. Mizuho will “most likely” recommend investors keep an “underweight” weighting on the MSCI China when it issues its next report in October, Roberts wrote.

The MSCI China Index has tumbled 25 percent this year as the Chinese government stepped up measures to cool inflation that’s at the highest level in almost three years. The Hang Seng China Enterprises Index, which tracks 40 companies traded in Hong Kong, sank 28 percent.

Benchmark indexes in Brazil, Russia and India have fallen between 18 percent and 23 percent this year. China’s Shanghai Composite Index, which is largely restricted to domestic investors, has slumped 13 percent in 2011.

China’s stocks may extend declines in the fourth quarter as economic and corporate earnings growth slows and liquidity remains tight, Chen Li, head of China equity strategy at UBS AG, wrote in a report dated Sept. 21. Fourth-quarter profit may drop 7.7 percent from a year earlier as companies clear inventories, hurting margins, the report said.

In technical analysis, investors study charts of trading patterns and prices to predict changes in a security.

To contact the reporter for this story: Darren Boey in Hong Kong at dboey@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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