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(Updates with RBS from fourth paragraph.)
Dec. 7 (Bloomberg) -- China’s equities will rally in the first half of 2012 as the stock market is among the cheapest in Asia, according to Michael Kurtz, chief Asian equity strategist at Nomura Holdings Inc.
He favors Chinese financial, energy and material companies in a market that is trading at a 33 percent discount to its long-term average, the strategist told reporters in Kuala Lumpur today. Nomura was ranked No. 1 for China research in a 2010 poll by Institutional Investor magazine.
“A lot of the pain in the first and second quarters appears to have been already embedded into equity prices,” Kurtz said. “Investors should be opportunistically taking advantage of the weakness in the market to add risks to their portfolio earlier in 2012.”
Nomura joins Royal Bank of Scotland Group Plc and UBS AG in predicting gains for the Shanghai Composite Index after the benchmark measure slumped 17 percent in 2011. Stocks have fallen for a second year after policy makers raised interest rates and banks’ reserve-requirement ratios to curb inflation, driving down the Shanghai gauge’s estimated price earnings to 11.1 times, compared with a six-year average of 18.3 times, according to weekly data compiled by Bloomberg.
Kurtz forecast the People’s Bank of China will cut interest rates by a quarter percentage point in the first quarter of next year and lower the reserve-requirement ratio by 200 basis points for all of 2012. China announced on Nov. 30 that it will reduce the amount of cash banks must set aside as reserves for the first time since 2008 as Europe’s debt crisis threatens exports and growth.
Wendy Liu, a Hong Kong-based equity strategist at RBS, said that China’s stocks may see a “sizeable rally” next year because of the change in monetary policy stance, improving investor protection and a likely more “moderate” pace of equity offerings. Neither Liu nor Kurtz provided stock targets.
“Be bullish, while valuations still look undemanding,” Liu said in a report dated yesterday. UBS said Dec. 1 that the Shanghai Composite may gain as much as 30 percent in 2012, while China International Capital Corp. turned more positive on Chinese stocks as financial and material companies may benefit most from a rebound in the economy.
“There will be ample evidence that Chinese policy makers have moved back over to a growth-supportive policy bias, away from the growth-constricting policy bias that has been in place over the past year to contain inflation pressure,” Kurtz said.
The pace of China’s economic growth is likely to bottom at 7.5 percent in the first quarter of next year due to a pullback in property investment and slowing exports because of Europe’s debt crisis, Robert Subbaraman, Nomura’s chief Asia economist, said at the same briefing. He’s expecting growth to rebound to 8.4 percent by the fourth quarter of 2012, he said.
Mizuho Asset Management Co., a unit of Japan’s third- largest bank, may buy “cheap” Chinese banks and developers because they may outperform in a rebound for stocks as inflation eases, Masahiko Ejiri, a fund manager, said in an interview yesterday.
China’s statistics bureau is scheduled to report November’s inflation rate and other economic data on Dec. 9. Consumer prices probably increased 4.5 percent last month from a year ago, compared with a 5.5 percent rise in October, according to the median estimate of 33 economists surveyed by Bloomberg. Inflation reached a three-year high of 6.5 percent in July.
Nomura announced Kurtz’s hiring as its Hong Kong-based chief Asia equity strategist on Oct. 28. He was previously Macquarie Group Ltd.’s head of Asian strategy.
--With assistance from Chan Tien Hin in Kuala Lumpur. Editors: Richard Frost, Allen Wan
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