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Investors start to trickle back

By Hu Yuanyuan (China Daily)
Updated: 2008-09-05 09:48

An investor monitors prices at a securities house in Haikou, Hainan province. [China Daily]

China's A shares, after plunging nearly 60 percent this year, are sparking renewed interest from value investors known for buying low and selling high.

"There's more interest in investing in the A-share market and seeking our advice (again)," Dong Chen, a senior analyst at CITIC China Securities, said. "I believe there's opportunities (to invest) emerging."

According to Kang Hongtao, chief investment consulting officer at Guoyuan Securities, a strong stock rebound is likely in September. But that doesn't mean China's A shares have already hit their lowest point.

"In the short term, A shares may fall further, given the uncertainties in the country's overall economy and the likely slowdown of company earnings growth," Dong said.

Dong said he believes that China is just at the beginning of an economic decline as a tighter monetary policy, soaring raw material prices and a slumping stock market erode profits.

The net profit of 1,595 listed companies was 582.9 billion yuan at August 30, up 15.01 percent year-on-year.

Analysts attributed that to the unified corporate income tax on local and foreign companies that started this year, cutting the rate for local firms to 25 percent from 33 percent.

According to a Guosen Securities report, net profit growth for 2008 will slow to 13 percent. That situation is not likely to improve in the first half of 2009.

But assuming profits remain flat next year, the market is now valued at only 18 times 2009 earnings - near the record low of 16 times in 2005, the end of a four-year slump.

Liu Lefei, chief investment officer of China Life, the country's largest life insurer and also one of the largest institutional investors in the market, said although A shares appear more attractive now, the insurer will be "prudent" about investment.

Merrill Lynch is upbeat about China's A shares, saying in a recent research note that they have reached a turning point and investors should prepare to buy.

Individual investors are taking note.

Hu Ran, a 61-year-old retiree, is closely monitoring the stock market - as he did in 1994.

He stayed away from stocks for over a decade after losing over 5,000 yuan in the 1990s, when the Shanghai Composite Index dropped from 1588 points in 1993 to its record low of 523.51 in 1996.

But now, Hu is weighing opportunities against risk. Many investors fear masses of shares could be released onto the market as lock-up periods expire after a reform of State-held shares.

The post-public offering lock-up period for many stocks expires this year. About 10 percent of locked-up shares will become tradable, and another 25 percent will be unlocked next year.