China’s stocks are the “most attractive” globally and investors should buy more of the nation’s equities as the government achieves a “soft landing” for the economy, Standard Chartered Plc (STAN) said.
The benchmark Shanghai Composite Index rose 1.8 percent to 2,807.88 at 2:03 p.m. local time, extending a two-week rally, on speculation reports showing a slowdown in manufacturing and services will allow the central bank to end its policy tightening campaign after four increases in borrowing costs since October. The Hang Seng China Enterprises Index of so-called H shares traded in Hong Kong climbed 2.3 percent.
“You should be overweight China on a three-month and a 12- month view because the soft landing in China is successful and we expect the worst is priced in,” Michael Preiss, chief equity strategist at the London-based bank, said in a Bloomberg Television interview from Singapore.
The Shanghai gauge has climbed 4.5 percent since June 23, the day before China’s Premier Wen Jiabao said efforts to stem inflation have worked. Non-manufacturing industries expanded at the slowest pace in four months in June, a report from the China Federation of Logistics and Purchasing said yesterday. A separate report on July 1 showed a manufacturing index declined last month to the lowest level in 28 months.
Chinese regulators discussed the possibility of targeted loosening of policies, including for small and medium-sized businesses, local government finance vehicles and the automobile industry, during meetings with economists, the China Business News reported today, without saying where it got the information.
The Shanghai Composite slumped as much as 6.7 percent this year on concern inflation would accelerate and economic growth would slow. The central bank has raised reserve requirements12 times and interest rates four times since the start of last year to tame inflation that reached a 34-month high of 5.5 percent in May.
The index is valued at 12.9 times estimated earnings compared with the average of 18.9 times over the past four years, according to data compiled by Bloomberg.
Nomura Holdings Inc. (8604) said today Chinese stocks will offer “buying opportunities” in the second half as valuations have already factored in monetary policy tightening amid “less aggressive” interest-rate increases. A slowdown in consumer price inflation, more fiscal stimulus and increased efforts to boost investment will also lift equities, the brokerage said.
“We are turning more optimistic on the outlook for China’s equity market in the second half of 2011,” said analysts from Nomura, ranked first in 2010 by Institutional Investor in its inaugural All-China Research Team poll. We “still expect a soft-landing scenario.”
Premier Wen confirmed targets of 4 percent for full-year inflation and 8 percent for economic growth during the annual meeting of the National People’s Congress in Beijing in March.
Nomura raised Chinese industrial, material and consumer shares to “overweight” and lifted banks to “neutral,” analysts led by Henry Wu wrote in a report. They cut telecommunications and utility shares to “neutral,” according to the report.
“The China market is the most promising market among the major markets in the world,” Preiss said.