Wednesday, 11 February 2009
Lunar New Year Market Rally: Stimulation Policy Plays
But the industrial stimulation plans being released these days aim for long-term structural adjustment and industrial upgrading, and not market bailout, so as the news pushes the index higher these days, it will be crucial for investors to avoid risk while seizing potential opportunities.
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Lunar New Year Market Rally: Stimulation Policy Plays
CSC staff, Shanghai
10 February 2009
The recent Chinese New Year’s cheer infected the stock market here during the first six trading days after the holiday on January 26 as the Shanghai Composite Index (SCI) rose steadily from below 2000 points to break the 2100 and 2200 point barriers. With the launch of the government’s industrial stimulation policies, the market looks set to climb even higher.
On February 1, the State Council released policies for the year to promote stable agricultural development and steady income growth for farmers. Agricultural stocks become the first to flower after the New Year, 77.36% of them outperforming the SCI. ST Sino-Agri enjoyed the highest jump of 31.32%.
It was reported on February 3 that drafted scheme for the petro-chemical industry may be released at the end of the month, with oil refining and chemical fertilizer the probable focus of the scheme. The news boosted the shares of PetroChina and Sinopec after the New Year’s holiday, while shares of Salt Lake Potash, a leading chemical fertilizer company, have leapt by 38.1% since the beginning of the month.
The State Council approved and released stimulation plans for the textile and equipment manufacturing industries on February 4, and was reported to have labeled shipbuilding as a key industry and formulated adjustment and stimulation plan for it on the same day.
Since the beginning of this month, Sihuan Bioengineering, Eastern Silk Market, and Xinmin Textile have risen 45%, 23.03%, and 23.02%, respectively, the highest in the textile industry. Shares of the equipment manufacturing industry are also moving up significantly. Baoguang, a Shaanxi-based apparatus company rose continuously to the daily limit and skyrocketed by 72.21% within six trading days.
Shipbuilding has also gained, with China Shipbuilding up by 39.75%, CSSC Jiangnan Heavy Industry by 42.4%, and Guangzhou Shipyard International by 55.81%, all outperforming the SCI.
It was reported on February 6 that a stimulation plan for the electronic information industry had been submitted to the National Development and Reform Commission, which had generally agreed on it and will submit it to the State Council for approval after revision. Sixteen companies in the information service industry have risen by over 30% since the beginning of the lunar New Year and only 1 company has dropped among all 56 listed companies.
Influenced by the government’s scheme for the non-ferrous metal industry and a large hike in international metal futures prices, non-ferrous companies continued to surge yesterday. Luoping Zinc & Elec. has boomed by 42.36% since the beginning of this month for the biggest gain in the industry. Large cap company Chinalco has jumped 55.45% since the beginning of the year, ranking 15th among 57 non-ferrous companies.
The State Council also approved adjustment and stimulation plans for the auto and steel industries on January 14. Listed steel companies rose significantly in the first trading days of this month.
Investors are said to be concerned over the future of relevant industries and shares after the launch of industrial policies and plans this year. Some worry that since some shares have risen significantly, they may not be able to sustain the trend in future.
The stock market slumped in 2008 due to the global economic crisis and other factors. But crisis is a process to rebalance the structure, and surviving companies will gain market share as rivals fall. Reasonable or lower valuation of such companies will provide investors a good chance to buy and hold.
But the industrial stimulation plans being released these days aim for long-term structural adjustment and industrial upgrading, and not market bailout, so as the news pushes the index higher these days, it will be crucial for investors to avoid risk while seizing potential opportunities.
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