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Attractive outlook for Chinese stocks

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01/02/2008

The Chinese equity market has recovered from a late 2007 correction to return to attractive levels, according to Richard Wong of Halbis, the active management specialist of the HSBC Group.

The Chinese markets saw a sharp correction late last year due to concerns over the US outlook and rising domestic inflation levels. However, 2008 has seen the price to earnings ratios of Chinese shares return to more attractive levels, according to Wong, with earnings growth remaining strong.

Wong said he expects uncertainty in the short term, but that Chinese H and red chip shares would resume an upward climb in the second quarter of this year, led by greater clarity on the US situation and whether rising inflation can be curbed.

“We believe a US recession may marginally slowdown China’s export growth, but the impact would most likely not be too severe,” Wong explained. “This is because China has emerged as a global economic powerhouse in its own right. Over recent years, China has increasingly broadened its export base and reduced its dependence on the US, which accounted for about 19% of China’s total exports in 2007.”

He added: “We believe the Chinese Government may increase interest rates to help reduce inflation ahead of the National People’s Congress (NPC) meeting in March 2008. However, any interest rises would not have a substantial negative impact on Chinese equities.”

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