Markets

Investors may cash in on gloom

By Li Xiang (China Daily)
Updated: 2010-11-04 13:58

BEIJING - Agricultural and consumer stocks may continue to offer investment opportunities amid expectations of inflation climbing in October, while natural resource shares could face a correction after excessive gains, analysts said.

The gauge of the agricultural sector rose by 1.45 percent on Wednesday despite the volatility in the general market, which edged lower by 0.47 percent, as investors worried that China's central bank may take measures to slow inflation.

Kweichow Moutai Co, China's largest producer of liquor by market value, and Tsingtao Brewery Co, the country's second-biggest brewery by volume, also paced gains among consumer companies on speculation that they will raise product prices to pass on rising costs.

The excess liquidity in the domestic and international market has pushed up the prices of commodities, food and agricultural products, which in turn triggered an A-share market rally led by inflation-related stocks including natural resources, agricultural, and consumer shares.

"We think agricultural and consumer stocks will continue to benefit from the consumer price growth that is likely to hit a new high in October. It is almost certain that the prices of agricultural products will climb higher," said Chen Guangyao, an analyst at Founder Securities.

Price hikes hit 80 percent of 31 food items in October, according to a monitoring list of domestic food prices from the National Development and Reform Commission.

Special Coverage: Rare as it is Related readings:  China's Oct CPI to rise 4.1%: Forecast  Food prices fuel inflation concerns

China's inflation rate may rise to 4 percent in October, a number of economists forecast. Yao Jingyuan, chief economist of the National Bureau of Statistics, said that full-year inflation growth will not exceed 3.5 percent.

Natural resource stocks, which had also benefited from inflation expectations, suffered a big loss on Wednesday after significant gains in the past month.

The sector may face a correction in the coming days as excessive valuations may prompt some investors to sell and take profits, analysts said.

The US Federal Reserve's plan for a second round of monetary easing is key, as it is likely to have a major impact on global liquidity as well as the global raw materials and energy markets, analysts said.

The recent surge in resource stocks was largely driven by market expectations that securities purchases by the Federal Reserve will spur demand for commodities as a hedge against inflation.

The US central bank may plan to buy at least $500 billion of long-term securities during the second round of monetary easing, economists said.