China, the rate Caution "positive" for stocks, former Golden Bull Zhen He says

China's decision to refrain from increasing interest rates higher and banks to set aside larger reserves in turn benefit the people, a fund manager at Shanghai Huili Asset Management Co., said.

central bank's lack of action "is pretty good news:" Zhen, who helps manage $ 301,000,000 as general manager of Shanghai Huili, said in an interview on 11 December after the publication of economic data, including a report showing the fastest inflation in 28 months. "The central bank will be very cautious about interest rates."

He previously worked at GF Fund Management Co. in Guangzhou and was awarded the "Golden Bull Award" by the China Securities Journal in 2005, the active site Huili said. His fund gained 17 percent this year, the website showed, compared with Shanghai Composite Index falling 8.3 percent.

China will not raise rates, as inflows from foreign fuel and exacerbate inflation, he said, echoing comments made by Wu Xiaoling, a former central bank deputy governor, a hedge fund conference in Shanghai 11 December.

The Shanghai Composite Index rose 2.9 percent to 2922.95 at the close 3 pm, the most since Oct. 15. He fell to the lowest level in two months on December 9 after the statistics office has brought forward the publication of economic data to December 11, 1913 December, indicating that some economists like Glenn Maguire, Societe Generale SA to an increase rate could come as early as this weekend. Instead, the central bank increased reserve requirements by 50 basis points from December 20, the third increase in five weeks, according to a statement after the market close on December 10.

Data Leak

The Shanghai index, the worst performer in Asia this year, has lost 7.5 percent since reaching a peak almost seven months, on November 8 on concern that monetary tightening to curb economic growth. Shares in the index are valued at about 16 times estimated earnings, near a minimum of two months.

China raised borrowing costs in October for the first time since 2007, inflation reached 4.4 percent that month, the highest since September 2008. November's consumer prices rose more than expected 5.1 percent from a year earlier, the statistics bureau reported on 11 December.

"The market has already digested largely negative factors such as hardening of the policy and the inflation rate of 5.1 percent," he said, just buy shares of companies with a market capitalization of large such as banks, developers and insurance companies because valuations. The filtered data before the announcement, the Economic Information Daily reporting on the number of inflation on 10 December.

Under pressure

"The global environment of low interest rates prevent China's central bank to raise interest rates," said Wu, a former central bank deputy governor. Emerging markets face capital inflows and "excessive money supply is a major reason for inflation in China," he said.

Zhou Xiaochuan, governor of the People's Bank of China, told China on 16 November is under "pressure" of capital inflows after the U.S. government announced a second round of quantitative easing to stimulate its economy.

Investors want to see higher interest rates, according to Hugh Simon, co-manager of the Dreyfus Greater China Fund. Simon likes china technology, industrial and consumer stock.
Goldman Sachs Group Inc. said in a report published today it would be "largely positive" if China raises lending and deposit rates soon to curb inflation amid the potential recovery of U.S. economy in 2011.

Economic Conference

London-based Capital Economics Ltd. said Dec. 10 that an increase in the rate after holding a senior economic policy meeting in Beijing this weekend "can not be ruled out."

China's leaders pledged to change the pattern of growth of the nation in 2011 and also focus on price stability after the result of calling Central Economic Work Conference yesterday, attended by President Hu Jintao and Premier Wen Jiabao. There were no specific targets for growth, inflation and lending, according to the first reports on state radio.

Hong Hao, a global strategist based in Beijing at China International Capital Corp., the top ranked brokerage for research in China in Asiamoney's annual survey, said the central bank's risk perception of being "behind the curve "not to increase borrowing costs.

"Behind the Curve '

China's economic data showed growth in November is to resist government curbs. The industrial-production growth accelerated to 13.3 percent last month from a year earlier, exceeding economists' estimates, the median of 13 percent. Urban fixed asset investment also grew at a faster pace, rising 24.9 percent in the first 11 months of 2010. Retail sales gained 18.7 percent in November from a year earlier.

"If the market does not understand this weekend, it is likely that the market sees monetary policy is behind the curve," Kong said in a report on 10 December after the announcement of reserve ratio. "Investors should stay put in the short term."

The benchmark rate for one-year deposits stood at 2.5 percent, less than the annual rate of consumer price inflation and the interest rate is 5.56 percent.

"The market was worried by rising interest rates, and eventually came up with a reserve ratio increase," said Luo Bin, general manager of Shanghai Mingyu Xiaoyang Investment Management Co., which manages the equivalent of $ 60 million. "The market interpreted as good news, since it has eliminated the uncertainty in the short term interest rates will not increase in the near future."