Equities 'to jump back' in 2nd half

Chinese equities will see a turnaround in the second half, supported by a bottoming out of economic growth, according to market analysts.

The Shanghai and Shenzhen stock markets were little changed on Friday, when data from the National Bureau of Statistics showed China's economy grew less than expected in the second quarter.

China's economic growth slowed to 7.6 percent in the second quarter, dragged down by decelerated trade and manufacturing activity.

The rate, the lowest level since the first quarter of 2009, is 0.5 percentage points lower than that in the first quarter and 0.1 percentage points lower than the 7.7 percent market consensus, raising expectations of more loosening measures.

For the first half as a whole, growth was 7.8 percent.

The major Shanghai Composite Index nudged up 0.02 percent, or 0.4 points, to 2185.98 points, amid a trading volume of 56.1 billion yuan. The Shenzhen Component Index, which tracks smaller companies, gained 0.4 percent, or 39 points, to 9792.49 points.

In Hong Kong, the benchmark Hang Seng Index was up 0.25 percent to 19073.56 points.

Wang Jianhui, chief economist with Southwest Securities Co Ltd, said the Shanghai index, which has slid 1.7 percent this week, a fourth week of losses, will jump to a high of 2800 points in the third quarter, reflecting improving economic fundamentals.

He said that pro-growth monetary and fiscal policies will continue for the rest of the year, which will help lift growth this year to 8 percent.

"Things will get better as the government takes out more from its policy toolkit," said Wang, who expects another cut in benchmark interest rates in the third quarter. The benchmark lending and deposit rates have been cut twice over the past 40 days.

Wang said investment-intensive industries, such as high-speed railways and nuclear power will benefit most from government policies.

In fact, investment has already picked up in the second quarter.

Fixed-asset investment excluding rural households increased 20.4 percent year-on-year in the first half. That is 0.3 percentage points higher than the rate for the first five months.

Dariusz Kowalczyk, senior economist and strategist with Credit Agricole CIB, said that domestic demand already saw a "re-acceleration" at the end of the second quarter.

Kowalczyk said he believes the Chinese government is more likely to cut reserve requirement ratio than the benchmark interest rate, predicting RRR cuts totaling 150 basis points will occur starting from this month, together with further banking and fiscal loosening.

"The big picture is that H1 saw the bottom of the cycle and growth is set to rebound in Q3, and especially in Q4, due to government stimulus measures," he wrote.

gaochangxin@chinadaily.com.cn

(China Daily 07/14/2012 page9)