HSBC tips mainland food prices to stay high

PUBLISHED : Thursday, 28 April, 2011, 12:00am
UPDATED : Thursday, 28 April, 2011, 12:00am


Inflation will peak on the mainland in the second half this year, according to HSBC Global Asset Management, as the country battles rising commodity prices, putting pressure on the food and beverage sectors.

Mandy Chan, investment director for equities at HSBC Global Asset Management, said that despite various attempts by the authorities to intervene in commodity markets and impose price controls, food prices would stay high.

The mainland has released some of its hog inventory and for the first time in more than a decade, imported corn, a key source of animal feed.

Chan said annual food inflation would hover between eight and 10 per cent this year, and was unlikely to reach 2007's record high of almost 16 per cent. Companies in the food and beverage sectors, on which the fund manager is bearish, would be worst-hit because they faced higher raw material costs.

The mainland's consumer price index is mainly driven by food inflation, and the China International Capital Corporation forecasts it to hit 5.2 to 5.5 per cent this month, up from January's 4.9 per cent.

But Chan expected that a slowdown in monetary supply and stringent price controls would cap inflation in the second half of this year.

HSBC Global Asset Management also expected insurance companies and property developers to struggle to maintain profit margins in the face of Beijing's monetary tightening.

The fund manager prefers mainland banks over insurers for their better valuations, saying that total premium growth for the insurance sector might fall because of fierce competition among sales agents.

Other companies that the fund manager forecasts might perform well this year include those in the solar industry and natural gas distributors, which are tipped to benefit from Beijing's push for alternative energy and lower coal consumption.

Even though the mainland's health care sector is forecast to show strong growth, Chan was not keen on drug makers, preferring health care equipment manufacturers for their higher margins.

Peak period

Annual food inflation is expected to stay around 8-10 per cent this year

It's not expected to reach the record high in 2007 of about: 16%