Friday, September 7, 2012

No big stimulus in China yet: analysts

SINGAPORE: China may roll out some stimulus measures soon to meet its growth target of 7.5 per cent growth this year.

August Industrial Output growth will likely to show output grew at 9 per cent in August from a year earlier - slower than 9.2 per cent in July.

But, analysts are expecting more aggressive pro-growth policies to be introduced when China's new administration takes office in March 2013.

This is expected to boost the share price performance of large Chinese corporations.

While China's economy is currently experiencing slower growth, Beijing is still expecting to outperform the rest of Asia this year with a full-year growth target of 7.5 per cent.

This is in contrast to the estimated 6 per cent growth for Asia, according to IMF estimates.

Unfortunately, Chinese stocks are not offering investment returns despite its growing economy.

The benchmark index, MSCI-China is down almost 3 per cent year-to-date, while the broader Asian stock market benchmark, MSCI Asia ex-Japan, is up by almost 5 per cent so far this year.

This is because analysts do not see investors pumping in additional investments into the "A" share market.

Head of China Equity Research at Nomura, Wendy Liu, said: "The regulatory framework and the enforcement is such that the miniority shareholders don't feel sufficiently protected."

Still, Nomura expects the MSCI-China to have an upside of 15 to 20 per cent in the first quarter next year when the new administration takes office in March 2013.

Lui added: "We are not overly hopeful or anticipating eagerly of any large stimulus. I think the measures will go in so that you get a bottomline of growth."

Their tactical calls include mainly high-quality beta names that may outperform the market in early 2013 such as Baidu, Belle, China Southern Airlines, ICBC and Sinopharm.

On the other hand, Goldman Sachs has trimmed its projections for China's economic growth this year from 7.9 per cent to 7.6 per cent.

Chief growth markets strategist at Goldman Sachs, Christopher Eoyang, said: "The next three months might be weak; China does have in our view the ammunition that it needs to support the economy. They have the right objectives essentially our view for the 12th five-year plan."

The weaker Chinese economy has also affected metal prices, given weaker appetite for commodities.

Head of Commodity Research at UBS AG Dominic Schnider, said: "The slowing in China economy already caused most of the cyclical metals, industrial metals to weaken quite a fair bit. Some of the base metals trade already deep into the production cost curve and we actually see little chance that prices can drop further because another drop would lead to quite big reduction in terms production capability."

But, investors are hoping Beijing will ramp up infrastructure spending to boost the country's economy.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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