No consensus on China stocks after plunge(2)
Kweichow Moutai Co. (600519), the country’s largest maker of baijiu liquor, is valued at 17.9 times profit. Net income for the company, based in Guizhou province, is expected to rise 37 percent in 2012, according to analyst estimates compiled by Bloomberg.
Slowing Growth
China’s economy has expanded at an average pace of 10.3 percent annually over the last decade, data compiled by Bloomberg show. Growth slowed to 9.1 percent in the three months ended Sept. 30 from 9.5 percent in the previous quarter as shipments to Europe, China’s biggest export market, slumped. While manufacturing contracted in November for the first time since February 2009, it expanded last month, according to China Federation of Logistics and Purchasing data.
UBS AG cut its prediction on Nov. 29 for growth in 2012 to 8 percent from 8.3 percent, while Citigroup Inc. (C) reduced its forecast to 8.4 percent from 8.7 percent. Average economic growth in the BRIC nations will slow to 6.1 percent this year from a high of 9.7 percent in 2007, according to September estimates by the International Monetary Fund. The IMF estimates global production will expand 4 percent.
Guotai’s Zhang said China’s economy will “bottom out” by the second quarter and easing inflation will allow the central bank to reduce interest rates for the first time since 2008. Chinese consumer-price growth jumped to a three-year high of 6.5 percent in July before slowing to 4.2 percent in November, close to the government’s full-year target of 4 percent.
Property Developers
The People’s Bank of China cut banks’ reserve-requirement ratios from a record high for the first time in three years on Nov. 30. The central bank may lower the ratios as much as four times this year to encourage lending to small companies hurt by a credit squeeze, Zhang said. He recommends shares of property developers, brokerages and chemical producers.
Shenzhen-based China Vanke Co. (000002) and Guangzhou-based Poly Real Estate Group Co. are the nation’s largest publicly traded property companies. Vanke and Poly Real trade at record-low valuations of 6.5 times and 6.6 times estimated profit respectively, data compiled by Bloomberg show.
The companies’ valuations have declined the past two years as the government introduced limits on owning property to cool surging prices. China’s home prices fell for a fourth month in December, according to SouFun Holdings Ltd., the nation’s biggest real estate website. The decelerating economy may spur the government to relax enforcement on property restrictions by the second quarter, Andy Rothman, a China macro strategist at CLSA Asia-Pacific Markets, said in a Dec. 22 interview.
Debt Crisis
Brokerages underestimated inflation last year, leading to overly optimistic predictions for stocks, according to Hao Kang, a Beijing-based fund manager at ICBC Credit Suisse Asset Management Co., which oversees about $8.3 billion.
A sustained rebound for Chinese equities will depend on whether Europe can contain its sovereign debt crisis, CICC’s Hong said. China’s exports to the European Union rose 5 percent in November, a quarter of the pace reported in July and August, according to customs data on Dec. 10. The region accounts for 18 percent of Chinese exports, according to Shanghai-based Shenyin & Wanguo Securities Co.
Premier Wen said China faced “problems of weakening external demand” in his Jan. 3 statement. China will maintain a “prudent” monetary policy and a “proactive” fiscal policy this year, the official Xinhua news agency reported Dec. 10.
Chinese Banks
Nomura Holdings Inc. (8604) forecasts Shanghai’s A shares will rebound between 15 percent and 20 percent in 2012 after valuations dropped to the cheapest in Asia, Michael Kurtz, chief Asian equity strategist, said at a Dec. 19 press conference in Beijing. The brokerage favors Chinese financial, energy and material companies.
Industrial & Commercial Bank of China Ltd. (601398), the nation’s biggest lender, and Bank of Communications Ltd., the country’s fifth largest, trade at 6.2 times and 4.9 times estimated earnings, according to data compiled by Bloomberg. That compares with 8.4 times for financial companies in the MSCI Emerging Markets Index.
The Chinese banks may report annual net income increases of at least 19 percent in 2012, analyst estimates (601328) compiled by Bloomberg show.
“We remain positive on Chinese equities,” said Templeton’s Mobius. “China is one of the fastest growing major economies in the world and is expected to play a major role in the global economy.”
Major Brokerages’ Forecasts for Chinese Stocks in 2012
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Brokerage Index Target
CICC Shanghai Composite none
Citic Securities Shanghai Composite *2,800
Shenyin & Wanguo Shanghai Composite 3,000
Guotai Junan Shanghai Composite 3,000
Galaxy Securities Shanghai Composite 3,100
GF Securities Shanghai Composite 3,100
Sinolink Securities Shanghai Composite 3,200
BNP Paribas Shanghai Composite 20-25% Gain
UBS Shanghai Composite Up to 30% Gain
Citigroup Shanghai A-Share Index **2,400-2,800
Credit Suisse Shanghai A-Share Index 2,900
Nomura Shanghai A-Share Index 15-20% Gain
Goldman Sachs CSI 300 Index 3,200
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*Citic’s prediction is for the first quarter.
**Citigroup sees A share-index trading in range and may reach as
high as 3,200
--Zhang Shidong, Allen Wan in Shanghai. With assistance from Zheng Lifei in Beijing and Bonnie Cao in Shanghai. Editors: Darren Boey, Laura Zelenko.
