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BIZCHINA> Top Biz News
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Rise in stock index forecast follows positive earnings reports
(China Daily)
Updated: 2009-11-16 07:56 Yuan appreciation China's nearly 1,700 listed firms ended their third-quarter results reporting season by the end of October with a combined quarterly net profit of 290 billion yuan. Analysts now expect a big fourth-quarter profit rise, especially given a very low base of just 37 billion yuan a year earlier, when listed firms took large provisions and de-stocking was at its peak as the global financial crisis dampened demand. With the yuan widely expected to renew its rise against the dollar, market players said companies with substantial local-currency assets, such as banks and property counters, or with most of their costs in dollars, such as airlines, likely well perform. "As China's economy recovers and exports improve in coming months, renewed yuan appreciation should not be a surprise," said a manager at a Chinese mutual fund in Shenzhen, who could not be quoted by name as he was not authorized to talk to the media. "So firms with significant yuan assets will see those assets appreciate gradually and earnings of companies, with most of their spending priced in dollars will be boosted by cost-cutting," the mutual fund manager said. The rally could also spill over into overseas stocks related to China, including components of MCSI (Morgan Stanley Capital International) China, such as Geely Automobile Co, and American depository receipts of New York-listed Chinese firms, such as oil giants Petrochina and Sinopec. In addition, it could offer fresh impetus for foreign funds to enter the Chinese market after a recent relaxation of restrictions on foreign portfolio investment. Threats to the uptrend Analysts said a key factor that could derail a market uptrend would be an early exit from China's relatively loose monetary policy - for example, an interest rate hike before the start of the second quarter - as improvement in both the domestic and global economies makes it easier to return to a more normal policy stance. After a series of strong economic data issued in mid-October, including 8.9 percent third-quarter GDP growth, and an industry survey in early November showing China's manufacturing sector expanding at its fastest pace in 18 months, evidence is mounting of strong momentum in the world's third-largest economy. Overseas, Australia has raised interest rates twice since early October, its first hikes since March 2008, while Norway became the first European country to raise rates in early November.
The indicated yield of China's benchmark five-year government bonds has jumped nearly 20 basis points since late September, reaching its highest level in a year this week. "Pressures are building due to fears of monetary tightening, which may be a key deterrent for the index to rise sharply for now," said Shanghai Securities investment chief Zheng Weigang. "Still, most market players believe an exit from pro-growth policies will be a gradual process, leaving enough of a time gap for the index to rise above its 2009 peak by early next year," Zheng added. (For more biz stories, please visit Industries)
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