Oil reaches USD120 per barrel

The HK stock market fell in line with the mainland market. The Hang Seng Index fell 651 to 25,610 (2.48%) while the Shanghai Index fell 4.13%.

Investors on the mainland are worried that there will be a flood of new shares from the end of the moratorium on majority shareholders, and the proposed share offering by Ping An Insurance of RMB 120 billion A shares and RMB 41 billion of bonds.

The price of oil reaching USD 120 also spooked investors especially since Goldman Sachs is now predicting USD 200 per barrel. Goldman was very prescient last year when they predicted that oil will top USD 100 per barrel by the yearend.

There were also rumours of housecleaning at the CSRC (China Securities Regulatory Commission) which added to market woes.

We do not see the market falling back to the 21,000 level where there had already been substantial consolidation, and has been tested 3 times. The market has fallen 10,000 from the high of 31,000 in October 2007 to the 21,100 level in January 2008. Since then the market has recovered about half the losses. Short term target on the upside is 27,000 to 28,000 with a downside to 24,000. At 24,000 there is good opportunity to accumulate shares for the next leg up.

The fallout from subprime is coming to an end. The bad news on the horizon is oil price.

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