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Saturday 20 December 2008
Analyst Tips Long and Turbulent Bear Market
Morgan Stanley expected a long and tumultuous U-shaped bottom in mainland and Hong Kong stock markets as the economy continued to worsen despite government aid, its Asia strategist said yesterday.
Morgan Stanley expected a long and tumultuous U-shaped bottom in mainland and Hong Kong stock markets as the economy continued to worsen despite government aid, its Asia strategist said yesterday.
Weakening exports and a shaky real estate market are leading to a capital-spending recession that could drag economic growth down below 6 per cent next year and cause companies’ profits to drop, Jerry Lou told a financial conference.
“It’s the first time in a decade that I don’t feel confident to see clearly the economic landscape in six months,” Mr. Lou said.
“It’s a virtue to be patient in buying stocks under such circumstances. China’s economy is already huge and open, so recovery needs time.”
The government has unveiled a 4 trillion yuan (HK$4.54 trillion) economic stimulus package, cut interest rates, injected liquidity into the banking system, slashed taxes and encouraged lending to cushion a slowdown in the economy.
However, Mr. Lou said the government could only prevent a crisis, not change the market’s downtrend.
For example, the 4 trillion yuan package was far from enough to reinvigorate an economy where companies were increasingly reluctant to spend and banks were less willing to lend, he said.
The government’s latest real estate policies aimed at boosting home purchases would not change peoples’ expectations that property prices would fall further.
“No government has yet proved successful in rescuing the property market,” Mr. Lou said. “The world’s last asset bubble is now bursting.”
Mr. Lou said that low valuations might not justify investments now in Chinese stocks, where 87.6 per cent of listed companies were highly cyclical. Profits at industries such as steel and banks would fall sharply during an economic downturn.
He suggested investors sell information technology, property and banking stocks, but they could buy less cyclical stocks, including consumer staples and telecommunications, if valuations were attractive.
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Analyst Tips Long and Turbulent Bear Market
Reuters in Shanghai
20 December 2008
Morgan Stanley expected a long and tumultuous U-shaped bottom in mainland and Hong Kong stock markets as the economy continued to worsen despite government aid, its Asia strategist said yesterday.
Weakening exports and a shaky real estate market are leading to a capital-spending recession that could drag economic growth down below 6 per cent next year and cause companies’ profits to drop, Jerry Lou told a financial conference.
“It’s the first time in a decade that I don’t feel confident to see clearly the economic landscape in six months,” Mr. Lou said.
“It’s a virtue to be patient in buying stocks under such circumstances. China’s economy is already huge and open, so recovery needs time.”
The government has unveiled a 4 trillion yuan (HK$4.54 trillion) economic stimulus package, cut interest rates, injected liquidity into the banking system, slashed taxes and encouraged lending to cushion a slowdown in the economy.
However, Mr. Lou said the government could only prevent a crisis, not change the market’s downtrend.
For example, the 4 trillion yuan package was far from enough to reinvigorate an economy where companies were increasingly reluctant to spend and banks were less willing to lend, he said.
The government’s latest real estate policies aimed at boosting home purchases would not change peoples’ expectations that property prices would fall further.
“No government has yet proved successful in rescuing the property market,” Mr. Lou said. “The world’s last asset bubble is now bursting.”
Mr. Lou said that low valuations might not justify investments now in Chinese stocks, where 87.6 per cent of listed companies were highly cyclical. Profits at industries such as steel and banks would fall sharply during an economic downturn.
He suggested investors sell information technology, property and banking stocks, but they could buy less cyclical stocks, including consumer staples and telecommunications, if valuations were attractive.
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