China stocks will bounce back next quarter of the biggest annual fall in the Shanghai Composite Index since 2008, slowing inflation reduces the need for further increases in interest rates and faster economic growth, according to the joint venture of Morgan Stanley in country.
The central bank's two rate increases since October will "achieve the full realization" in moderating consumer prices rose at the fastest pace in 28 months in November, said Zhao Lisong, chief strategist at Morgan Stanley Huaxin Fund Management Co., which oversees about $ 1,900,000,000. Developers, materials producers and automobile manufacturers will benefit as the government slows down the pace of policy tightening and accelerating growth, he said.
"China's economic growth will support a slight upward trend in 2011," Zhao said in a telephone interview yesterday from Shenzhen, declining to give a forecast for the Shanghai Composite index. "As inflation given after the Chinese New Year, the government can reduce the frequency of adjustment measures." The Chinese lunar new year ends in mid-February.
The Shanghai Composite Index dropped 1.7 percent to 2,732.99 today, extending the measure in question is longest losing streak since July, after the People's Bank of China raised key one-year lending and deposit rates by 25 basis points, or 0.25 percentage point, on Christmas Day. The measure in question has fallen 17 percent this year, making it the worst performer among the 14 largest stock markets in the world.
government of Prime Minister Wen Jiabao has ordered banks to set aside more reserves for six times this year and raised rates to control inflation and curb asset bubbles after record high prices of loans and property. China reported inflation of 5.1 percent in November, surpassing the previous month by 4.4 percent as food costs rose.
"Comparatively strong '
populations in the nation fell yesterday as JPMorgan Chase & Co. and Morgan Stanley predicts further increases in interest rates in the first half of 2011. China may raise rates three times in the first six months, according to Morgan Stanley, while JPMorgan forecasts two increases during that period.
China, the inflation rate may be in a "relatively high" in the first half, "said Liu Jianwei, a fund manager Boser Asset Management Co., which manages about 19 billion yuan in Shenzhen.
Is in favor of gold producers and airlines as a hedge against inflation and the government allows a faster appreciation of yuan, the reduction of U.S. carriers the cost of dollar debt. Liu also likes companies that benefit from the government side of the five-year economic plan, which focuses on boosting domestic consumption and increasing energy efficiency.
China's economy will grow at a rate of 10 percent next year and inflation averaged 3.3 percent, the China Academy of Social Sciences said in its Blue Book of Economics in 2011 published December 7. The target for 2010 GDP growth is 8 percent, according to Wen's annual report for work on 5 March.
Earnings Growth
The expansion of the economy, which is set to overtake Japan as second largest in the world this year, will support the growth of earnings up by 22 percent next year, according to Morgan Stanley Huaxin Zhao.
China profits from industrial enterprises rose 49.4 percent in the 11 months to November last year, a report showed yesterday. The increase compared with a gain of 7.8 percent over the same period in 2009.
China increased the interest rate will be good for bank profits, and that will boost net interest margins without increasing the rate of demand deposit, according to a report of UOB Kay Hian yesterday.
The benchmark interest rate rose to 5.81 percent and the rate of one-year deposits rose to 2.75 percent. The interest rate rise to 6.56 percent by the end of next year.
"The shortage of liquidity could provide in the first quarter," said Zhao, the predicted increase its lending banks after the government sets an annual quota again. "Economic growth will also increase liquidity."
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