China’s stock market will enjoy a rally lasting from now until the first quarter of 2013 as local authorities complete their own leadership changes ahead of the national changeover later this year and start to focus on implementing stimulus measures, while property curbs might be eased because of the cooling economy, Nomura said. The broker forecasts that the MSCI China Index will gain by 15 to 20 per cent to reach the low 60s in the first quarter of 2013. The gauge closed at 53.37 as of Tuesday. “It’s time (for the market) to go back up,” said Wendy Liu, head of China equity research for Nomura International. “People are really trying to gauge how much investment dollars will come through the system and how the macro number will improve.” Last Friday, both Hong Kong and China’s market surged after the Chinese government announced fast-tracked approvals for infrastructure projects. But China’s onshore market remains the world’s worst major performing stock market so far this year, weighed down by jitters over a possible “hard landing” by the world’s second biggest economy, and by the euro zone sovereign debt crisis. The Shanghai Composite Index has lost 3.6 per cent year-to-date as of Tuesday. In Hong Kong, The Hang Seng China Enterprise Index, which tracks the performance of Chinese enterprises listed in Hong Kong, has lost 5.63 per cent so far this year as of Tuesday, compared with a 7.72 per cent gain for benchmark Hang Seng Index. Nomura predicts that China is heading for a brief “Goldilocks” period – neither too hot nor too cold, but just right -- with moderate growth and moderate inflation ahead of the once-in-a decade leadership reshuffle next March, which would be an auspicious time for a market rally. She likes companies with high-quality beta names, including Belle International ( 1880.HK ), China Southern Airlines ( 1055.HK ), CNOOC ( 0883.HK ), Huaneng Power International ( 0902.HK ) and Galaxy Entertainment Group ( 0027.HK ). Yet Liu remains bearish on the banking sector, saying non performing loan (NPL) risks are likely to peak some time next year. “For the banking sector, the NPL headline risk is there. You (have to) give a time for the NPL number to cycle through,” Liu said.Nomura expects earnings growth at banks of just 0.5 per cent for the whole of 2012, far below the market consensus forecast for around 8.6 per cent growth. Yet she said 2013 will be more challenging as added capacity in some sectors of the economy may lead to downward revisions for some corporate earnings forecasts. Nomura forecasts six to seven per cent growth for companies listed on the MSCI China.
