2010-07-01 13:47

China's stocks may rebound in the second half of the year as slowing inflation and falling property prices dispel investor concerns of increased tightening measures, CITIC Securities Co said.

The Shanghai Composite Index may climb above 3,000 this year, CITIC Securities strategists led by Yu Jun wrote in a report obtained on Thursday. That represents a gain of at least 25 percent from the closing level of 2,398.37 on Wednesday. The benchmark equity gauge lost 27 percent in the first half as the government raised banks' reserve requirements to the highest level in at least three years and curbed real-estate speculation. [China stocks continue downward trend]

"Investor expectations of interest-rate increases and a further tightening of liquidity and the property market will ease as inflation and home prices decline," the strategists at the nation's biggest listed brokerage wrote in the report.

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. Prospects for a stock rebound may be cut as exports face "strong headwinds" in the second half and loan growth may slow by the end of 2010, Citigroup Inc said this week. [Tough times forecast for China's exporters]

Real-estate prices jumped 12.4 percent across 70 cities in May, the second-fastest pace after April's 12.8 percent record gain. Consumer prices rose 3.1 percent in May from a year before, exceeding the government's 3 percent target average for 2010.

Insurers, developers

Premier Wen Jiabao said the nation will "further cement and develop the positive economic trend," in a statement posted on the government's website on Wednesday. He pledged both continuity and flexibility in policies amid an "extremely complicated" domestic and global outlook. [Wen: economy heading in right direction]

Related readings:  China's manufacturing expands at a slower pace  PMI of manufacturing sector falls to 52.1%  Economy likely to maintain steady, rapid growth: PBOC  Wen: economy heading in right direction, 'relatively fast' growth seen

The brokerage recommended investors buy shares of insurers, banks, property developers, agriculture producers and machinery and home-appliance makers.

China's manufacturing expanded at a slower pace for a second month in June, adding to signs that growth in the world's third-largest economy is moderating.[China's manufacturing expands at a slower pace]

China's Purchasing Managers' Index fell to 52.1 from 53.9 in May, the Federation of Logistics and Purchasing said in e-mailed statement on Thursday, less than the median 53.2 estimate in a Bloomberg News survey of 12 economists.

China's economic growth will slow from a 10-year average of 10.2 percent to between 9 percent and 10 percent in the next "two to three years," according to the CITIC Securities report. The strategists could not be reached for comment by telephone.

The economy expanded 11.9 percent in the first quarter, the fastest pace in almost three years.