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Banks provide mixed views on China stocks

WHILE BNP Paribas is more cautious over the future of China's equity market, analysts from UBS and Morgan Stanley are a bit more upbeat and have given it a higher rating.

The French bank yesterday downgraded China equities from overweight to neutral. "The main issue we see for the market is the lack of growth among China large caps, even if the global economy can get back on its feet," Erwin Sanft, a BNP Paribas Securities (Asia) Ltd analyst, said yesterday.

The listed state-owned banking, telecommunication, resources, insurance and construction companies, which dominate the equity market in China, enjoy much bigger profit than the norm elsewhere in the world.

But Sanft said the profit growth of these big firms is expected to stagnate in the future.

However, UBS AG expects a bull market in China based on a low interest rate environment in the medium term and rising investor momentum in the rest of this year.

"We see some important seeds being planted for a bull market, including a low interest rate environment in the medium term which could make equity investment more attractive than before," UBS said in a report yesterday.

Morgan Stanley on Tuesday upgraded China stocks to "neutral" based on growth in liquidity globally.


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