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China economy to rebound on stimulus, post fund says

China’s economy will rebound from its slowest growth in almost a decade as government investment peaks and property and auto sales remain brisk, according to the nation’s best-performing fund manager this year.

“Government stimulus has started to take effect and helped companies gradually shake off the rapidly deteriorating operating environment seen in the fourth quarter,” said Wang Haitao, fund manager at Beijing-based China Post & Capital Fund Management Co., in a first-quarter fund report released yesterday.

China’s new loans more than tripled to a record 4.58 trillion yuan ($670 billion) in the first quarter after the government removed lending restrictions and urged banks to support a plan to revive the world’s third-biggest economy. The government pledged a 4 trillion yuan ($585 billion) spending program in November to revive growth after the global recession curbed exports.

Wang oversees the China Post Core Stock Selection Equity Fund, whose 51 percent return this year makes it the top-ranked China-domiciled fund, according to data compiled by Bloomberg. The benchmark Shanghai Composite Index has gained 34 percent in 2008, the second-biggest advance among 89 global stock gauges tracked by Bloomberg.

Increased loans helped boost property sales by 8.2 percent in the first quarter, while passenger car sales gained 10 percent last month to the highest-ever after the government cut taxes and gave subsidies to spur consumption. First-quarter GDP grew 6.1 percent, the slowest since the fourth quarter of 1999.

‘Ample Liquidity’

Goldman Sachs Group Inc., Morgan Stanley and CLSA Asia- Pacific Markets all raised their forecasts for China’s economic growth this week.

“Liquidity will remain ample even though it is unlikely that the surge in bank lending can be sustained,” Wang said in the report.

Beijing-based Citic Securities Co., China’s biggest brokerage by market value and the fund’s top holding, has gained 39 percent this year. Liaoning Cheng Da Co., a textile trader that derives a quarter of its sales from overseas and the fund’s second-largest investment, has almost doubled its share price since the start of the year.

The fund held 88.8 percent of its assets in equities and 8.8 percent in cash as of March 31, compared with 90.4 percent and 9.3 percent respectively at the end of last year.

This year’s rally has driven stocks on the Shanghai Composite to trade at 21.3 times earnings, compared with 12.8 times on Oct. 31 and the highest among the biggest emerging economies including Brazil, Russia and India.

Bubble Warning

Valuations have “overshot corporate fundamentals” and increase the risks of an asset “bubble,” China Asset Management Co., the nation’s largest fund company, said this week. China Asset has increased the allocation to cash and reduced equities holdings in its flagship fund. Morgan Stanley cut its view on China’s equities to “cautious” from “neutral” today, citing risks of a slowdown in bank lending.

The Shanghai Composite fell 1 percent to 2,436.68 at the 11:30 a.m. trading break, extending a two-day, 3.8 percent drop.

Companies that rely on overseas demand will see better prospects as stimulus measures by various governments help a recovery in the global economy, according to the China Post fund report. Alternative energy stocks and those that will benefit from Shanghai’s hosting of the 2010 World Expo also present opportunities, the report said.

Source: bloomberg.com

Publication date: 4/23/2009


 


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