Markets

Chinese shares good buy as rally beckons

By Michael Patterson and Chua Kong Ho (China Daily)
Updated: 2010-07-01 11:26

LONDON - The Chinese mainland, which has the worst-performing stock market after Greece, looks like a buy by almost any measure, according to top-ranked analysts of the Asian nation's shares.

The Shanghai Composite Index's 27 percent plunge this year, including Tuesday's 4.3 percent slump, sent its price-earnings ratio to 18, the lowest level versus the MSCI Emerging Markets Index in a decade. The largest owners of yuan-denominated stocks have turned net buyers for the first time since equities bottomed in 2008, while international investors are paying the biggest premium in 21 months to bet on a rally in funds that hold China's yuan-denominated or A shares, data compiled by Macquarie Group Ltd and Bloomberg show.

Morgan Stanley, BNP Paribas SA and Nomura Holdings Inc say stocks will rally as China's June 19 decision to end the yuan's two-year peg to the dollar helps curb inflation and asset bubbles. The Shanghai index rose 62 percent in 12 months after China last allowed a more flexible exchange rate in July 2005.

Related readings:  China stocks continue downward trend Wednesday  Chinese stocks slump 4.27% to 14-month low Tuesday  China stocks breach 'Key' technical support at 2,481

The Shanghai Composite Index fell for a sixth day on Wednesday, losing 1.2 percent to 2398.37 at the close. Its slump this year is second only to the 35 percent plunge in Greece's ASE Index among the world's 60 biggest stock markets, according to data compiled by Bloomberg.

Companies on the Shanghai gauge will increase earnings by 40 percent in 12 months, more than double the pace of the ASE, analysts' estimates by Bloomberg show.

Consumer-related shares will benefit from a shift in the economy to increase domestic spending, said Leo Gao, who helps oversee about $600 million at APS Asset Management Ltd in Shanghai, according to Bloomberg data. "Stocks will end the year higher," Gao said.

Bloomberg News