Update zu China: Marktkommentar

Market commentary on China Christina Chung, Senior Portfolio Manager, RCM Asia Pacific Limited

We have highlighted in our previous commentary that following exceptionally strong growth in new loans in H1/2009, we would expect new loans to moderate in H2/2009. This should not be a surprise to the market given the seasonality pattern in previous years. In addition, as a significant part of new loans in H1/2009 were discounted bills which typically had a relatively short duration, these loans will need to be rolled over to longer term loans. Hence, incremental loans should naturally slow down in H2/2009 as a result. While we do not view this as a form of tightening by the authorities, the market may take this as a negative signal that policy stance in China has shifted towards tightening. Meanwhile, there is also speculation of tightening measures including raising capital requirement for banks.  We maintain our view that there should be no aggressive tightening measures in the short term. Instead, policy stance will be relatively neutral as the central government monitors the pace of economic recovery in the global economy. Risk of tightening will increase if inflation picks up sharply and we would need to monitor inflationary trend including property and commodity prices. The domestic sectors in China have generally been holding up well. Property transactions have slowed recently but prices remain relatively strong. Given limited supply of property in Q3/2009 following very robust property sales in H1/2009 that absorbed much of the unsold inventory, we would expect a relatively quiet period for the property market over the next couple of months. The risk is that if property prices rise sharply, then the government may be forced to take more aggressive tightening measures to cool off the property market. Meanwhile, consumption has been picking up steadily. Auto sales remain relatively robust. 

Corporate earnings should post strong recovery in H2/2009 partly helped by a low base of comparison. Earnings visibility for 2010 is still low but share prices have largely factored in a recovery in corporate earnings next year. Reflecting more positive sentiment, consensus earnings for H-shares have been steadily revised upwards for 2010.

Overall, we would expect the China equity market to consolidate recent gains in the short term. We would take advantage of share price correction to position in stocks or sectors that would continue to enjoy strong structural growth. In this regard, we would continue to focus on domestic sectors particularly consumer and infrastructure related stocks.