China’s leadership change “removes the biggest overhang” for the nation’s equities as the new government is determined to carry out reforms, according to Victoria Mio, portfolio manager at Robeco Hong Kong Ltd.
“Investors are now anticipating a more pro-active government going forward,” Mio, whose Chinese Equities fund has beaten 85 percent of rivals over the past year according to data compiled by Bloomberg, said in e-mailed comments. “Implications on sentiment are positive as it removes the biggest overhang on the Chinese equities market this year.”
The Shanghai Composite Index (SHCOMP) slid 0.8 percent to 2,014.73 at the close, extending losses this week to 2.6 percent, as the Communist Party named a new generation of leaders to oversee an economy that is forecast to grow this year at the slowest pace in more than a decade. Xi Jinping was appointed general secretary of the party, putting him in line to become president.
China’s new leaders will be more tolerant towards lower “new normal” rates of economic growth as the days of massive stimulus to boost the expansion are probably over, Barclays Plc said yesterday. The economy is expected to grow 7.7 percent this year, according to estimates compiled by Bloomberg, which would be the slowest pace since 1999.
“Implications on the economy are neutral in the near term as the new leadership is expected to maintain the current monetary and fiscal policies,” Mio said, who helps to manage $240 billion at Robeco. “As the economy showed some signed of early stabilization, there is no incentive to announce more stimulus.”
Chinese industrial production, fixed-asset investment, retail sales and exports growth exceeded economists’ estimates last month, according to government reports. The central bank has refrained from easing since rate cuts in June and July and a May reduction in reserve requirements for lenders.
John Woods, the Hong Kong-based chief Asian strategist at Citigroup Inc.’s private bank, said he’s advising clients to be cautious on Chinese stocks given policy uncertainty in China and global turmoil including the so-called fiscal cliff in the U.S.
Investors are focused on whether the new leadership is intent on reform, according to Woods, who said Chinese stocks valuations are cheap and may get cheaper.
Vice Premier Li Keqiang is forecast to replace Premier Wen Jiabao. Wang Qishan, vice premier overseeing the financial sector, was named head of the party’s discipline body, indicating he won’t have a post directly overseeing the economy.
Stocks on the Shanghai Composite trades at 9.6 times estimated profit, compared with 8.5 for the Hang Seng China Enterprises Index, according to data compiled by Bloomberg.
Liu Yang, chairwoman of Atlantis Investment Management Ltd., said China’s stocks are “extremely cheap” and both mainland and Hong Kong equities offer “great value.”
“Investors need time to digest what’s going on with the leadership transition,” Liu said in a Bloomberg Television interview in Hong Kong today. “Our new president is really a reformer. The reformers are still there but need time.”
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