Analysts bullish on China stocks

PUBLISHED : Wednesday, 29 June, 2011, 12:00am
UPDATED : Wednesday, 29 June, 2011, 12:00am


Despite the threat of inflation, concerns about the accuracy of the financial statements of mainland companies and the debt crisis in Europe, prominent analysts remain optimistic about China-linked equities.

Howard Wang, head of the Greater China team at JP Morgan Asset Management, has predicted there will be double-digit growth in the benchmark MSCI China index by the end of this year.

Wang said he believed there would be a 'more sustainable rally in China-linked equity' in the long-run, considering the length of the correction in the China equity market and the attractive valuations of China equities.

The China stock markets were still at an early stage of their development, he added. The consumer staples and consumer discretionary sectors, for example, only made up five per cent each of the MSCI China stock index, while healthcare was only 1 per cent. That represented ample room for growth, fuelled by wealth accumulation and an increase in personal income.

Wang predicted that Beijing's monetary policy would remain tight in the near term, but said he did not believe there would be a hard landing for China given the booming growth in consumption. He also expected inflationary pressure to moderate in the second half of this year on the mainland.

Catherine Cheung, head of investment strategy and research for Citibank Global Consumer Group, said she expected emerging market and Asian equities to rise by more than 20 per cent by the end of the year, given their attractive valuations and the growth momentum in the region.

On the mainland economy, Cheung expected inflation to ease in the second half of the year as monetary growth eased, but still expected two more interest-rate hikes from Beijing this year.

She said investors should be cautious about investing in property-related China equities because of mainland efforts to cool the market. But she was bullish about Chinese materials, information technology, banks, utilities and consumer staples, which were driven by the continued growth in consumer spending across the nation.

She also said the Hang Seng Index might reach 25,500 by the end of this year, as there was plentiful liquidity in the market.