How Will Chinese Stocks Fare In 2012?

BEIJING, China: Chinese stocks have taken a hit this year, with the Shanghai Composite down by more than 21 per cent as the markets head into the last few days of trade in 2011.

And with signs of a slowing domestic economy in the new year, investors are expected to remain cautious.

But some market-watchers said the Chinese market maybe due for a rebound.

China stocks have been struggling in 2011 amid worries over domestic credit tightening and the gloomy external outlook.

Other factors including the eurozone crisis, sluggish US recovery as well as rising food and property prices at home have depressed China?s stock markets.

With the Shanghai Composite tumbling by some 20 per cent this year, it is one of the worst-performing markets in the region.

Some market-watchers said the selling has been overdone, as a result of too many speculators in the market.

Watchdata Technologies CEO Wang Youjun said: ?It?s not to share in enterprises? profits and income but buying and selling in the market to add value.

?There are too many of such people. For example, China has more than 100 million investors, about 50, 60 million active accounts.

?When we speak to our Brazilian counterparts, they have only 500,000 investor accounts and only one hundred to two hundred thousand active ones. It shows how many Chinese people are into the stock market.

But foreign investors have also shifted money out of China stocks.

In November, Bank of America and Goldman Sachs reduced their shares in China?s banks on fears that developers may not be able to repay their loans amid falling property prices.

But some analysts are still positive about the property sector in the long term.

IHS Global Economics China analyst Alistair Thornton said: ?There?s talk about over capacity in the property sector ? that?s certainly true because they?re building the wrong type of properties at the wrong type of areas, at the wrong price point for a lot of people.

?But there?s a huge demand for property and infrastructure development over the next 10, 20 years, that will continue unabated almost.?

The Chinese authorities have made building affordable homes a priority in the coming years.

Some believe companies related to property ? currently suppressed by government measures ? may start rebounding next year.

Peking University Guanghua School of Management Professor of Accounting Jiang Guohua said: ?Property developers, the financial sector, public utilities, especially power generation companies ? they bore the brunt of government regulation in the past year and their stocks were under-priced relative to their fundamentals and results.

?It?s an over-reaction. That?s why I prefer these companies in the coming period of time.?

With inflation easing to its lowest in nearly a year in November, many expect the central bank to start injecting liquidity into the market.

Some analysts said for China?s stock markets to continue developing there should be less government intervention.

Professor Jiang said: ?Our regulators have, to a certain extent, become the dealers of the stock market. To keep it growing, fewer IPOs are offered. To suppress it, release more IPOs. (In the) long term, this will hurt investors? confidence and moves.?

Analysts said the long-term challenge is for China is to reduce regulations in its markets to attract more investors.

But with uncertainty in the world?s financial markets and the global economy, any liberalisation is unlikely to happen next year.

- CNA/wk

Channel News Asia

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