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Saturday 20 December 2008
Equity Investors Look to China as Safe Haven Amid Global Recession
Greater China remains the most favoured destination for Asian equity investors largely because fund managers are relatively optimistic about the economy even in a global recession, according to a Merrill Lynch survey.
Equity Investors Look to China as Safe Haven Amid Global Recession
Daniel Ren in Shanghai and Jane Cai 19 December 2008
Greater China remains the most favoured destination for Asian equity investors largely because fund managers are relatively optimistic about the economy even in a global recession, according to a Merrill Lynch survey.
Half of the fund managers surveyed said they intended to “overweight” Chinese equities even though 80 per cent predicted the economy would slow down next year.
“Ironically, the slowdown is indirectly making investors more bullish on China, thanks to the promise of policy stimulus and falling commodity prices,” said Michael Hartnett, the chief emerging market equity strategist at Merrill Lynch.
As the American-born credit crisis ricochets around the globe, investors see China as a safe haven and hope Beijing will roll out more economic stimulus measures to keep the economy on a fast track, say analysts.
“The Shanghai Composite Index is at a low level, with stocks trading at 12 times their forecast earnings for 2008, compared with a price-earnings multiple of 40 in past years,” said Pu Yonghao, a chief regional economist at UBS. “The central government is determined to stabilise the stock market, which means the possibility the index will decline further is slim. Maybe China will launch a stock stabilisation fund.”
Beijing also hopes to stimulate the ailing economy to shore up confidence in the equity markets, as investors look to cash out on fears of worse corporate earnings ahead.
The Shanghai Composite Index sank 61.69 per cent this year after a 96.66 per cent rally last year, and the sharp fall has made some stocks look attractive to investors.
Early this year, Beijing tripled the quota for qualified foreign institutional investors from US$10 billion to US$30 billion.
The foreign exchange regulator has pledged to waive rules to encourage purchases by overseas funds as they seek to profit from the mainland’s economy.
Moreover, last month Beijing unveiled a 4 trillion yuan (HK$4.54 trillion) economic stimulus plan and analysts expect more incentives in the coming months.
“We are confident that China will be able to handle the current turmoil and get growth back on track,” said Laura Luo, a Chinese equities fund manager with Schroders. “But it is likely to remain a bumpy ride for both the equity market and the economy in the year ahead, especially in the first half.”
China Everbright Research on Wednesday made an upbeat forecast of 8.6 per cent gross domestic product growth next year.
A consensus prediction among economists is that the mainland economy will hit the bottom in the second quarter.
H shares of dually listed companies might be more attractive for international fund managers as they were cheaper, analysts said.
The mainland-listed A shares now trade at a 21.7 per cent premium to their Hong Kong counterparts, a smaller price gap compared with the more than 70 per cent in late October.
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Equity Investors Look to China as Safe Haven Amid Global Recession
Daniel Ren in Shanghai and Jane Cai
19 December 2008
Greater China remains the most favoured destination for Asian equity investors largely because fund managers are relatively optimistic about the economy even in a global recession, according to a Merrill Lynch survey.
Half of the fund managers surveyed said they intended to “overweight” Chinese equities even though 80 per cent predicted the economy would slow down next year.
“Ironically, the slowdown is indirectly making investors more bullish on China, thanks to the promise of policy stimulus and falling commodity prices,” said Michael Hartnett, the chief emerging market equity strategist at Merrill Lynch.
As the American-born credit crisis ricochets around the globe, investors see China as a safe haven and hope Beijing will roll out more economic stimulus measures to keep the economy on a fast track, say analysts.
“The Shanghai Composite Index is at a low level, with stocks trading at 12 times their forecast earnings for 2008, compared with a price-earnings multiple of 40 in past years,” said Pu Yonghao, a chief regional economist at UBS. “The central government is determined to stabilise the stock market, which means the possibility the index will decline further is slim. Maybe China will launch a stock stabilisation fund.”
Beijing also hopes to stimulate the ailing economy to shore up confidence in the equity markets, as investors look to cash out on fears of worse corporate earnings ahead.
The Shanghai Composite Index sank 61.69 per cent this year after a 96.66 per cent rally last year, and the sharp fall has made some stocks look attractive to investors.
Early this year, Beijing tripled the quota for qualified foreign institutional investors from US$10 billion to US$30 billion.
The foreign exchange regulator has pledged to waive rules to encourage purchases by overseas funds as they seek to profit from the mainland’s economy.
Moreover, last month Beijing unveiled a 4 trillion yuan (HK$4.54 trillion) economic stimulus plan and analysts expect more incentives in the coming months.
“We are confident that China will be able to handle the current turmoil and get growth back on track,” said Laura Luo, a Chinese equities fund manager with Schroders. “But it is likely to remain a bumpy ride for both the equity market and the economy in the year ahead, especially in the first half.”
China Everbright Research on Wednesday made an upbeat forecast of 8.6 per cent gross domestic product growth next year.
A consensus prediction among economists is that the mainland economy will hit the bottom in the second quarter.
H shares of dually listed companies might be more attractive for international fund managers as they were cheaper, analysts said.
The mainland-listed A shares now trade at a 21.7 per cent premium to their Hong Kong counterparts, a smaller price gap compared with the more than 70 per cent in late October.
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