Bloomberg News

Goldman Sachs Recommends Chinese Stocks on Economic Outlook

November 07, 2011

(Updates with index level in third paragraph.)

Nov. 7 (Bloomberg) -- Goldman Sachs Group Inc. advised buying Chinese stocks as the nation’s economy will grow “close to trend” in the coming quarters, spurred by easing credit and government measures to help small companies.

“We are recommending a long position in Chinese equities,” Goldman Sachs strategists said in a note to clients. “The market may be poised to continue to shift from the pricing in of hard-landing scenarios to the pricing in of some policy- driven relief and reacceleration.”

Goldman Sachs favors shares in the Hang Seng China Enterprises Index because of their underperformance relative to the Standard & Poor’s 500 Index. The so-called H-shares index gained 1 percent to 10,816.02 as of 10:41 a.m. at Singapore time, paring this year’s drop to 15 percent. The Standard & Poor’s 500 Index has lost 0.4 percent in 2011.

Chinese stocks rallied last month, with the H-shares index surging 18 percent, after the government announced measures to help small businesses through easier access to bank loans and said it will lower the threshold for payment on value-added and business taxes for small companies.

Manufacturing slowed last month, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing. The Purchasing Managers’ Index data boosted speculation the government will end a two-year tightening campaign as inflation and economic growth decelerate.

“Chinese growth has clearly slowed, as the most recent PMI data further illustrate,” the Goldman Sachs strategists said. “However, the slowdown remains mild, we expect close-to-trend growth to resume in the coming quarters.”

Loan Growth

Chinese stocks have fallen this year after the central bank raised interest rates three times and lifted the reserve- requirement ratio to curb credit growth and tame inflation that’s near a three-year high. The tightening helped slow growth to 9.1 percent in the third quarter from a year earlier, the least in two years.

Inflation probably eased to 5.4 percent in October, from 6.1 percent in September, according to the median forecast of economists surveyed by Bloomberg before a statistics bureau report on Nov. 9.

Reports that some Chinese banks’ loan quotas have been increased from this month are “most likely true” as officials move to support growth in the world’s second-biggest economy, Daiwa Capital Markets said. New lending may exceed 600 billion yuan ($94 billion) this month and next, up from 470 billion yuan in September, Hong Kong analyst Sun Mingchun said in an e-mailed note dated on Nov. 3.

Industrial & Commercial Bank of China Ltd., the nation’s biggest bank, said on Nov. 4 loans to small companies rose 37 percent in the first nine months as the government seeks to bolster such credit to support the economy. China Banking Regulatory Commission Vice Chairman Zhou Mubing repeated on Nov. 3 policy makers’ commitment to bolstering banks’ financing of small businesses to curtail defaults that may destabilize the economy.

--With assistance from Lynn Thomasson in Hong Kong. Editors: Allen Wan, Shiyin Chen

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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


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