Salomon pinpoints sector for investment
Mainland oil and chemical stocks have enormous upside due to forecasts of an improvement in supply and demand in Asia next year, a Salomon Smith Barney report said.
The United States brokerage painted a positive picture for the mainland's oil and chemical industry, saying the cyclical downturn was near its end.
With few exceptions, Salomon said it would look to upgrade earnings forecasts for mainland plays in the sectors following the announcement of their results for last year.
Head of regional energy and chemicals research Janet Yang said there was 'enormous upside potential' for oil and chemical stocks over the next five years.
She said: 'Upside surprises to 1999 sector earnings could come from Beijing's intensified import crackdown, a full year of deregulated domestic oil prices, and successful implementation of higher value-added tax export rebates.' Salomon said the best buys were Shanghai Petrochemical and Zhenhai Refining & Chemical.
With most mainland companies having expanded capacity during their last earnings peak, they were expected to see substantially higher peak earnings during the coming upturn, Ms Yang said.