Analysts see stocks’ outlook getting better

HONG KONG- Chinese government measures to curb property-price gains and tame inflation are “at or close to the peak,” bolstering the outlook for stocks, according to JP Morgan Asset Management.

China’s inflation will ease as the measures have been “highly effective”, said Howard Wang, the Hong Kong-based head of the Greater China team at the JPMorgan unit, which oversees $14 billion of assets on the Chinese mainland, in Hong Kong and Taiwan.

Wang said he is adding some “very cheap'” property developers, materials companies and technology shares to his holdings. His Greater China Fund has returned 22 percent over the past year, beating 86 percent of rivals, according to data compiled by Bloomberg.

“We think inflation is peaking now and that it will ease off,” Wang said in an e-mailed response to questions. “All things equal, that should make a better environment for Chinese equities.”

The Hang Seng China Enterprises Index tracking Chinese stocks traded in Hong Kong had declined 3.1 percent this year to Tuesday, lagging behind the 1.9 percent decline for the MSCI Emerging-Markets Index, on concern measures to curb inflation will slow economic growth and hurt corporate earnings.

China’s consumer prices jumped to a three-year high of 6.4 percent last month on rising food costs. The central bank has boosted interest rates five times and lenders’ reserve-requirement ratio 12 times since the start of 2010.

China’s inflation might peak in July as summer harvests boost food stockpiles and money supply growth stabilizes, Chen Dongqi, deputy head of the National Development and Reform Commission’s macroeconomic research institute, was quoted as saying by the 21st Century Business Herald on July 12.

Inflation in developing nations may stop rising next month, allowing the central bank to pause interest rate increases, Sakthi Siva, Credit Suisse Group AG’s Asian equity strategist, said in an interview on July 8.

“The government’s tightening policies are real and they are highly effective,” Wang said.

“However, the policies do not exert an equal effect on all companies in this group, and valuations are, as a rule, very cheap and based on beatable earnings estimates.”

The Hang Seng China Enterprises Index trades at 10 times estimated earnings, compared with 10.9 for the MSCI emerging-markets gauge and 12.8 for China’s Shanghai Composite Index, according to data compiled by Bloomberg.

China’s cabinet said last week it will expand measures to rein in residential prices in smaller cities after limiting home purchases in metropolitan areas.

Beijing new-home prices rose 2.2 percent last month from a year earlier, while in Shanghai , they climbed 2.2 percent, the statistics bureau said on its website July 18.

Bloomberg News

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