HSBC Recommends Avoiding China's Stocks Until Second Half 2011
By Bloomberg News - Feb 20, 2011
HSBC Holdings Plc recommended investors avoid China’s stocks until at least June because the government will announce more policy measures to cool inflation.
“We wouldn’t advise buying equities until we’re clear of signs of inflationary pressure and that probably won’t happen until the second half,” Garry Evans, a strategist at HSBC in Hong Kong, said in a Feb. 18 phone interview after the central bank ordered lenders to set aside more money as reserves for the second time this year. “We have been pretty cautious on Chinese equities for a year now and we still think there is a risk of more increases in reserve requirements and interest rates.”
The People’s Bank of China announced following the close of markets on Feb. 18 that reserve ratios will increase half a percentage point from Feb. 24, draining cash from the financial system after lending surged in January, inflation quickened and new home prices rose in all but two of 70 cities monitored by the government. The central bank has boosted reserve requirements eight times since the start of last year, while increasing interest rates three times.
The Shanghai Composite Index has rebounded 3.3 percent this year, after sliding 14 percent in 2010, amid speculation the Chinese economy will withstand the tightening measures.
Nomura Holdings Inc., ranked first by Institutional Investor magazine in its All-China Research Team poll last year, turned “bullish” on China’s stocks on Feb. 15, citing “inexpensive” valuations and growth in money supply. The Shanghai Composite’s 930 companies trade at an average 18.5 times reported earnings, compared with an historical average of 34.5 times since 1990, quarterly data compiled by Bloomberg show.
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