Oxstones Investment Club™Global investors should brace “for more pain” as manufacturing growth slumps and prospects that Chinese monetary policies will loosen have faded, said China International Capital Corp., Asia’s biggest investment bank.
China’s August manufacturing data was one of the lowest since the end of the global financial crisis, while factory output in South Korea, Taiwan, France, Italy, the UK and Sweden all dropped below expansion levels, Hao Hong, a Beijing-based global strategist at CICC, wrote in a report. CICC and Shenyin & Wanguo Securities Co. cut their earnings forecasts for publicly traded companies this year on speculation the central bank may not halt measures to curb credit growth and tame inflation.
“Our view has been that rebounds are likely to be fleeting and feeble unless fundamentals start to improve,” Hong said. “For now, we should brace ourselves for more pain.”
The Shanghai Composite Index dropped 2 percent to 2,478.74 at the 3 p.m. close, the lowest level in almost 14 months. The benchmark measure has fallen 12 percent this year, adding to a 14 percent drop in 2010, driving down estimated price earnings for the benchmark measure to a record low of 11.4 times. The central bank raised rates five times and ordered lenders to set aside more cash as deposit reserves 12 times since the start of 2010 to contain consumer-price inflation that reached a three- year high in July.
China Economy
“The odds are low that policies will be fine-tuned in the short term,” analysts led by Li Peng at the Shenyin & Wanguo, wrote in a report today. “Even if CPI peaks in August and eases by a large margin, the policies are still expected to be in place for a while. The government is confident about the dynamics of the economy.”
CICC is the top-ranked China research provider in Asiamoney magazine’s survey while Shenyin & Wanguo was ranked the country’s most influential brokerage for research by New Fortune magazine last year.
China’s Purchasing Managers’ Index was at 50.9 last month, trailing economists’ estimates, and compared with a 29-month low of 50.7 in July, the China Federation of Logistics and Purchasing said on Sept. 1. A Chinese services index fell to a record low in August as new business growth moderated, adding to evidence the economy is slowing, according to a statement issued by HSBC Holdings Plc and Markit Economics today.
No Policy Change
Premier Wen Jiabao wrote in the ruling Communist Party’s Qiushi magazine last month that the nation’s top priority is stabilizing prices and the government doesn’t plan to alter the direction of economic policies.
The premier’s comment has “dashed” bets that policies will ease in China, CICC’s Hong said. The People’s Bank of China may even raise interest rates one more time before the end of the year, he said.
Earnings at major companies trading on the Shanghai and Shenzhen exchanges may rise 19.1 percent this year, compared with a previous estimate of 23.2 percent, Shenyin & Wanguo wrote in today’s report.
Shanghai Composite companies posted 24 percent earnings growth in the first half of the year, slowing from a 48 percent gain in the first quarter, according to data compiled by Bloomberg.
–Zhang Shidong. Editors: Allen Wan, Shiyin Chen
Tags: Asia, China, china PMI, chinese economy, chinese stocks, inflation, interest rates, monetary policy, shanghai index