Markets

Policy changes to fuel equity rally, says RCM

By Chua Kong Ho and Rishaad Salamat (China Daily)
Updated: 2010-09-07 13:31

SHANGHAI - Mainland stocks, the worst-performing major market this year, may be poised for a "significant" rally when the government relaxes its policy tightening measures, according to RCM Asia Pacific.

"Given that investors are so far underweight, it could be a significant move" when the government reverses its lending and property curbs, Mark Konyn, chief executive officer of RCM Asia Pacific, which manages more than $12 billion, said in a Bloomberg Television interview. "You talk about fickleness among investors. China is the prime example, finishing last year, everyone enthusiastic, this year's been a disaster."

Konyn, based in Hong Kong, didn't say when the government may ease its tightening policies. Morgan Stanley said on Aug 2 China's policy cycle will turn growth supportive in the fourth quarter. Deutsche Bank AG economist Jun Ma and China International Capital Corp equity strategist Hao Hong said last month inflationary pressure reduces the likelihood the government will ease monetary policy in the near term.

Manufacturing in China grew at a faster pace in August after the weakest performance since early 2009 in July, signaling that the economy's slowdown is stabilizing. China's economic growth may slow to 8.2 percent in the fourth quarter after growing at 11.9 percent in the first quarter and 10.3 percent in the second quarter, Citigroup Inc said in a report.

The Chinese economy is "still very sensitive to the external sector, the sovereign debt crisis has been a big blow to the recovery in China and it is working its way through those issues," said Konyn.

Spending for better life? Related readings:  Nomura Holdings tops Institutional Investor's China equity research poll  China's stocks close higher Monday, led by heavyweights  China stock index futures close higher -- September 6  Sideways trading pattern of index expected to continue

Konyn, who has been based in Hong Kong since 1989, was the head of institutional business development for Fidelity Investments in Hong Kong before joining RCM in 1997. He is a fellow of the Royal Statistical Society, and was previously a committee member of the FTSE Index Asia Pacific.

Erwin Sanft, a BNP strategist based in Hong Kong, said he remains "overweight" in Chinese equities and that the equity market is likely to rise when free cash flow is back in positive territory, which may occur in the fourth quarter, according to a note to clients.

The rebound in mainland stocks since July may resume this month as valuations have already reflected a slowdown in second-half earnings and the economy has already hit bottom, Industries Securities Co said in a report on Sunday.

Bloomberg News