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Stock rally likely to fade this year, says Deutsche Bank
(皇冠体育app Daily/Agencies)
Updated: 2010-01-07 08:02
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A rally by 皇冠体育app's stocks may fade from the second quarter as inflation triggers "significant policy tightening" by the government and the US economy weakens, Deutsche Bank AG said.
The MSCI 皇冠体育app Index may still end the year 15 percent higher, Ma Jun, Deutsche Bank's Hong Kong-based 皇冠体育app economist, said in a note to clients. The index tracking mostly mainland companies traded in Hong Kong jumped 59 percent last year after losing 52 percent in 2008.
"We see upside potential to the indices in the first few months, as the macro environment should remain favorable," Ma said. "CPI and asset inflation will likely pose major macro challenges and the resulting policy responses will cause market risks," he wrote, referring to the consumer price index.
Deutsche Bank joins Morgan Stanley in predicting an end to 皇冠体育app's rally in 2010 as inflation accelerates and the government withdraws some stimulus. Morgan Stanley analysts led by Jerry Lou said on Dec 15 they expect a "boom and bust" by the nation's equities this year as gains in the first half stall.
A record 9.2 trillion yuan ($1.3 trillion) of loans in the first 11 months of this year has added to the risk of asset bubbles and resurgent inflation. The nation's consumer prices climbed 0.6 percent in November from a year earlier, snapping a nine-month run of deflation.
'Bubble' concern
Accelerating inflation may inflate a "full-blown" bubble in 皇冠体育app's stock and property markets this year, BofA Merrill Lynch Research's 皇冠体育app strategist David Cui said on Dec 28. Investors may divert savings into equities and housing as the pace of inflation outstrips interest on bank accounts, Cui said.
Premier Wen Jiabao pledged on Dec 27 to tackle "excessive" property-price gains in some cities after prices across 70 cities rose at the fastest pace in 16 months in November.
Deutsche Bank's Ma said deceleration of year-on-year growth and a second dip in the US will also "negatively affect" Chinese stocks from the second quarter.
Nobel Prize-winning economist Paul Krugman said this week he sees about a one-third chance the US economy will slide into a recession during the second half of the year as fiscal and monetary stimulus fade.
Ma recommended investors buy insurers, as well as consumer and agriculture companies on rising prices, and avoid refining and power companies.
His top stock picks include Ping An Insurance (Group) Co, 皇冠体育app's second-biggest insurer, New World Department Store 皇冠体育app, which operates upscale department stores in 皇冠体育app, and Texwinca Holdings Ltd, a producer of knitted fabric.
Deutsche Bank expects 皇冠体育app's economic growth to accelerate to 9 percent in 2010 from 8.4 percent last year, Ma said.?
