Money

Large-cap stocks 'to fuel rally'

By Chua Kong Ho (China Daily)
Updated: 2010-10-20 13:29

SHANGHAI - China's large-cap stocks will lead a rally in the country's equities as investors switch from smaller companies that trade at higher valuations, according to Bosera Asset Management Co.

"The divergence in performance between large- and small-cap stocks will increase," said Deng Xiaofeng, a fund manager at Bosera Asset, China's third-largest money manager with $31 billion in assets, according to Institutional Investor. "Every dip is a good opportunity to buy low-valuation large-cap stocks."

A car enters a PetroChina Co gas station in Beijing. PetroChina is the biggest stock on the Shanghai Composite by weighting. [Photo / Agencies]

The Shanghai Composite Index has rebounded 25 percent from this year's low on July 5, after plunging 27 percent in the first half as investors speculated the nation's economic growth will remain resilient to government curbs on lending and property speculation.

PetroChina Co, the biggest stock on the Shanghai Composite by weighting, rallied 11 percent as of Monday since China's markets resumed trading on Oct 8 following a week-long holiday, while Industrial & Commercial Bank of China Ltd, the second largest, gained 15 percent.

The CSI Smallcap 500 Index, which tracks smaller companies on the Shanghai and Shenzhen bourses, declined 0.5 percent since the holiday break. Stocks traded at about 47 times reported earnings on the small-cap index, more than double the 19.7 times for the Shanghai Composite.

Related readings:  China stock index futures close up - Oct 19  Mainland stock rise extends into 6th day  PetroChina to seek private capital

Bosera's Deng was not more specific about his recommendations and did not name individual stocks or industries.

Emerging-market equity funds have taken in more than $23 billion since the start of September, according to EPFR Global data, amid indications that the US Federal Reserve and the Bank of Japan will add to stimulus measures to defend the economic recovery.

Chinese stocks will extend their rally as investors increase purchases in a market that lagged behind gains in Asia, according to Templeton Asset Management Ltd's Mark Mobius said on Oct 13. The MSCI Asia Pacific excluding Japan Index has climbed 11 percent this year, compared with a 9.8 percent loss for the Shanghai Composite. The MSCI China Index has advanced 7.4 percent in 2010.

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