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Analysts positive on shares outlook
By Xiao Feng |
November 12, 2010, Friday
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Print Edition
Print Edition
ANALYSTS are generally positive over the outlook for the Chinese mainland stock market following the central bank's move to raise the lenders' reserve requirement ratio for the first time since May, although there are pockets of concerns that the move may be the first of a series of tighter measures.
Commercial banks in China will face a 50 basis point increase in their reserve requirement ratio from next Tuesday, the People's Bank of China said on Wednesday. This means that the reserve ratio of the biggest banks in China will stand at 18 percent.
Analysts who are positive said the move, which is likely to withdraw 300 billion yuan (US$45 billion) from circulation, is not strong enough to drain liquidity from the market. They believe that abundance of liquidity is caused by an inflow of hot money. They do not see a new round of interest rate hikes because higher interest rates will lure more hot money to flow into the country.
''Raising the reserve ratio is a better option because the outcome of an interest rate hike may complicate the matter,'' said Kai Wenming, an analyst with Everbright Securities. ''We believe this step of the central bank may restrain the growth of the stock market, but will not reverse the upward trend.''
He added that ''coal and metal producers, airlines and agriculture-related stocks may outperform.''
Xiangcai Securities echoed a similar view.
''The stock market has contributed a lot to the fundraising activities of companies as more than 70 percent of the world's initial public offering this year took place in China,'' said Xu Guangfu, an analyst at the brokerage. ''The country will support the stock market to sustain its economic transition.''
Xu favors the technology and green energy sectors as they boast high investment value.
Analysts with a dissenting view warned of even more volatility if consecutive tightening monetary policies are introduced.
''The blue chips, and especially the property sector, will suffer because frequent adjustments (in policies) hurt market sentiment,'' said Huang Xuejun, an analyst at Guosen Securities.
Commercial banks in China will face a 50 basis point increase in their reserve requirement ratio from next Tuesday, the People's Bank of China said on Wednesday. This means that the reserve ratio of the biggest banks in China will stand at 18 percent.
Analysts who are positive said the move, which is likely to withdraw 300 billion yuan (US$45 billion) from circulation, is not strong enough to drain liquidity from the market. They believe that abundance of liquidity is caused by an inflow of hot money. They do not see a new round of interest rate hikes because higher interest rates will lure more hot money to flow into the country.
''Raising the reserve ratio is a better option because the outcome of an interest rate hike may complicate the matter,'' said Kai Wenming, an analyst with Everbright Securities. ''We believe this step of the central bank may restrain the growth of the stock market, but will not reverse the upward trend.''
He added that ''coal and metal producers, airlines and agriculture-related stocks may outperform.''
Xiangcai Securities echoed a similar view.
''The stock market has contributed a lot to the fundraising activities of companies as more than 70 percent of the world's initial public offering this year took place in China,'' said Xu Guangfu, an analyst at the brokerage. ''The country will support the stock market to sustain its economic transition.''
Xu favors the technology and green energy sectors as they boast high investment value.
Analysts with a dissenting view warned of even more volatility if consecutive tightening monetary policies are introduced.
''The blue chips, and especially the property sector, will suffer because frequent adjustments (in policies) hurt market sentiment,'' said Huang Xuejun, an analyst at Guosen Securities.
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