Bloomberg News

China Stock Futures Rise, Signaling Rebound for Benchmark Index

November 16, 2011

Nov. 17 (Bloomberg) -- China’s stock-index futures rose, signaling gains for the benchmark index, as investors speculated the inflation outlook provides leeway for the central bank to take measures to boost economic growth.

Futures on the CSI 300 Index expiring in December added 0.3 percent to 2,679.60 as of 9:17 a.m. local time. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, tumbled 2.5 percent to 2,466.96 yesterday. The CSI 300 Index slid 2.7 percent to 2,670.12.

The Shanghai Composite has fallen 12 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation. Stocks have also dropped on concern the European debt crisis will further slow growth in Chinese exports.

Inflation may slow below 5 percent next year, allowing the central bank to reduce the reserve ratio requirement by the first quarter, “if not sooner,” strategists led by Henry McVey, head of global macro and asset allocation at KKR & Co., wrote in a research note. Slowing inflation may allow China’s central bank to loosen monetary policies, boosting “beaten- down” stocks and other high-yielding assets, according to KKR.

China’s central bank reiterated Premier Wen Jiabao’s pledge to “fine-tune” policies when needed. While inflation may continue to moderate, “the foundation of price stability is not yet solid,” the People’s Bank of China said yesterday in its third-quarter monetary policy report. “Extremely loose” global monetary conditions, and rising domestic labor and resource costs may “exacerbate inflationary expectations,” according to the report on the PBOC’s website.

The central bank’s third-quarter report “repeatedly mentioned monetary policy mix,” Dong Tao, an economist at Credit Suisse Group AG, wrote in the report dated today. “We do not sense signs of an across-the-board easing, as the central bank seemed happy with the current pace of growth and inflation. Selective easing is more likely.”

The government should cut the reserve requirement ratio his year because the M2 growth is “very slow,” Caijing reported on its website, citing an unidentified person from the People’s Bank of China.

China’s consumer price gains slowed to 5.5 percent in October from a three-year high of 6.5 percent in July, giving the government greater scope to unwind monetary tightening as Europe’s debt crisis hurt exports.

To contact the editor responsible for this story: Allen Wan at awan3@bloomberg.net


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