Goldman Sachs says 2012 will be sunny year for mainland firms
Jane Cai and Celine Sun in Beijing
Mainland companies' shares are expected to trade higher next year with improved corporate profits and market valuations, Goldman Sachs told an investor conference yesterday.
Firms represented by the MSCI China Index are likely to post 8 per cent year-on-year growth in net profit next year and price-to-earnings ratios should climb from the currently implied 8.5 to 9.5, resulting in a 30 per cent index gain in 2012, said Helen Zhu, an equity strategist at the bank.
The corporate profit increase would be supported by healthy economic growth and low inflation next year, with gross domestic product (GDP) predicted to expand 8.6 per cent and inflation tipped to rise 3.1 per cent, according to Song Yu, a Goldman Sachs economist.
The forecasts - more optimistic than many of Goldman's peers - were made to investors increasingly worried that worsening local-government fiscal problems and struggling small and medium-sized enterprises could lead to a hard landing in the world's second-largest economy.
Song said the tightening policies would cool demand to weigh down prices. As Beijing starts fine-tuning its macro policies to achieve 'selective easing', an economic soft landing is expected next year.
Food and beverage companies, retail and consumer durables are some of the sectors expected to outperform next year, while shipping and steelmakers are among the underperformers, the bank says.
Joshua Lu, consumer analyst with Goldman Sachs (Asia), is bullish on retail industry growth despite high inflation and an uncertain market.
'Inflation is an ongoing concern. But people's wage growth has outpaced the CPI [consumer price index] growth overall, which means people's purchasing power is getting stronger,' said Lu.
He said high-end consumer products, from home appliances and apparel to personal health care products, were enjoying particularly fast growth as Chinese consumers traded up to higher quality goods.
'We think the industry of department stores will benefit significantly from this trend. But some domestic apparel and sportswear retailers who target middle-class consumers may have a hard time,' he said.
Goldman analyst Ma Ning said the biggest risk for the mainland economy and its banking system came from property price declines, which could lead to chain reactions in steel, cement and other sectors, causing a rise in loan defaults.
Property prices in major mainland cities may decline 15 per cent to 20 per cent over the next 12 months, resulting from lending curbs and administrative measures to cool the property market, according to another analyst, Wang Yi.