Bloomberg News

China’s Stocks May Rebound Further 9% on Data, Citic Says

October 31, 2011

(Updates with closing index price in sixth paragraph.)

Oct. 31 (Bloomberg) -- China’s benchmark Shanghai Composite Index may rise a further 9 percent on the prospect of improving economic data and as concern over the European debt crisis eases, according to Citic Securities Co.

The Shanghai Composite, which closed at 2,473.41 on Oct. 28, may advance to as high as 2,700, Xi Feng, an analyst at Citic, the nation’s biggest-listed brokerage, wrote in a report today. The index has rebounded 6.5 percent from this year’s low on Oct. 21 as Premier Wen Jiabao said last week the government will fine-tune economic policies as needed, boosting speculation the government will lower banks’ reserve requirements’ and cut interest rates as inflation and economic growth slow.

Chinese companies involved in environmental protection, water conservation and recycling will benefit from government policies targeting those industries, Xi said.

“China’s October Purchasing Managers’ Index may be better than September as Premier Wen signaled policy easing, sales of railway bonds resumed and the outlook for the European debt crisis has improved,” Xi said. The manufacturing data is scheduled for 9 a.m. tomorrow. It was at 51.2 in September, expanding for a second month.

European leaders agreed last week to boost the firepower of the region’s rescue fund to 1 trillion euros ($1.4 trillion) and persuaded bondholders to take 50 percent losses on Greek debt, responding to pressure to come up with a credible plan before next week’s Group of 20 meeting in France.

Getting Bullish

The Shanghai Composite dropped 0.2 percent to 2,468.25 at the close today, the first decline in six days, after Wen said the government would maintain curbs in the property market. For the year, the index is down 12 percent after the central bank raised interest rates three times and ordered lenders to set aside a bigger portion of their deposits to curb inflation.

Citigroup Inc. and UBS AG are among the brokerages that have turned more positive this month on Chinese stocks amid signs of policy easing. The government has announced measures to help small companies through easier access to loans and tax breaks, while introducing lower value-added tax categories for the transport industry.

China may loosen its lending standards as the “next logical step” after announcing selective policy easing measures to boost the economy, according to China International Capital Corp.

“Earnings growth is slowing substantially across the board for the A-share market as it continues through quarterly earnings season,” Hao Hong, CICC’s global equity strategist, wrote in a report today. “Just as fundamentals are slowing down, in part due to the government’s tightening campaign earlier, more signs of designated easing are emerging.”

Inflation Outlook

China’s economy grew 9.1 percent in the third quarter, the least in nine quarters. Inflation may continue to slow this month, Citic said. The rate may drop to 5.6 percent in October on slowing food price gains, Shenyin & Wanguo Securities Co. said last week. Consumer prices eased to 6.1 percent in September from a three-year high of 6.5 percent in July.

UBS said it’s good time to be “less defensive” on Chinese stocks while Citigroup advised buying stocks that are reliant on economic growth, according to reports released by the two brokerages last week.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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