STOCKWATCH: Hong Kong China stocks off highs after rally on Zhu's address

HONG KONG (AFX-ASIA) - China stocks were off their highs on profit taking after an early morning rally following Prime Minister Zhu Rongji's comments that the annual economic growth target for the country for the next five years will be 7.0 pct, dealers said. Opening the annual session of the National People's Congress, Zhu praised the progress of China's 20-year reform process and said the government hopes to double gross domestic product (GDP) by 2010, supporting sentiment in China stocks in the territory, they added. At 11:18 am, the Hang Seng China Enterprises index was down 1.45 points at 391.58, off a high of 398.83, while the CAC index was up 4.96 points at 1,137.09, off a high of 1,163.45. The Hang Seng Index was down 10.22 points at 13,956.21. Giovanni Kuang, an analyst with Tung Tai Securities, said the rally in China stocks in Hong Kong was attributed to Zhu's comments. "Zhu said China is expected to post steady growth during the next five years, providing some psychological support for China stocks in Hong Kong," he said. Kuang said further upside is seen for H-shares, with their current P/E ratio remaining attractive. "A number of H-shares, with their current P/E ratios staying at around 3-8 times, should see some further upside in the coming six months," he said. Among these, Shangdong International Power is seen reaching 2.00 hkd in the next 6 months, Yanzhou Coal Mining should reach 3.00 hkd, while China Southern Airlines should also reach 3.00 hkd, Kuang said. "Shangdong International Power and Yanzhou Coal Mining have reported encouraging results recently, whilst China Southern Airlines should continue to benefit from China's imminent WTO entry because of its aviation business entity," Kuang said. Shangdong International Power was unchanged at 1.43 hkd on volume of 1.06 mln shares, Yanzhou Coal Mining was up 0.075 hkd or 3.03 pct at 2.55 hkd on volume of 7.27 mln shares and China Southern Airlines was down 0.025 hkd or 1.11 pct at 2.225 hkd on volume of 4.47 mln shares. "Sinopec Zhenhai Refining & Chemical is also one of our favourite stocks, with its P/E ratio at around 5 times. We have a target price of around 1.50 hkd in the coming six months for the stock," he said. Sinopec was unchanged at 1.12 hkd on volume of 1.60 hkd. He said the performance in B-share markets in the mainland will continue to provide some additional support in terms of market sentiment for local China plays, but that impact should be relatively small given the fact that most H-shares are listed as A-shares on the mainland,rather than as B-shares. "About 70 pct of H-shares are listed as A-shares on the mainland, thus the performance of B-shares will only provide some psychological support for H-shares and red chips in Hong Kong. Turnover in B-shares remains relatively thin. "Despite B-shares' significant rise after their resumption of trading on the mainland over the past week, downside risk is not foreseen in the near term," Kuang said.

Related stock : (NIL)