Bloomberg News

China Stock Rally to End as Policies Disappoint, BofA’s Cui Says

February 22, 2012

Feb. 23 (Bloomberg) -- China’s stocks may fall as much as 13 percent by the end of the year as the central bank’s “fine- tuning” of monetary policies won’t be enough to offset an economic slowdown, according to Bank of America Corp.

The government needs to cut interest rates or relax curbs in the property market to sustain this year’s 9.3 percent rebound for the Shanghai Composite Index, David Cui, chief China strategist at the Merrill Lynch unit, said in an interview in its Shanghai office yesterday. Cui, 43, who has been bearish on China equities since May 2010, said the Shanghai gauge may drop to 2,100 by year-end. It rose 0.9 percent to 2,403.59 yesterday.

“If the government only does fine tuning, it’s not sufficient to remove the major overhangs behind the poor market performance over the past two years or so, including a lack of a new and sustainable growth driver and the banking system’s bad debts,” said Cui. “The markets will likely remain lukewarm.”

China’s stocks have rebounded this year on speculation the government will loosen monetary policies to stem a decline in economic growth triggered by Europe’s debt crisis and a slumping property market. The Shanghai gauge tumbled 33 percent over the past two years, making it the worst performer among the world’s 10 biggest markets. The People’s Bank of China increased interest rates and lenders’ reserve-requirement ratios last year to tame consumer prices that rose 4.5 percent last month, up from 4.1 percent in December.

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

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Allen Wan in Shanghai at awan3@bloomberg.net

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


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