HSI to hit 25,000 in 2012 on looser credit, CCB says
Beijing will relax monetary policy more, helping to boost market suffering from global uncertainty and drop in Japanese manufacturers’ confidence
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Beijing will relax monetary policy more, helping to boost market suffering from global uncertainty and drop in Japanese manufacturers’ confidence
Charlotte So
16 December 2011
Beijing’s initial moves to relax credit would become more pronounced next year, helping to boost the Hang Seng Index to 25,000 points in 2012, the brokerage arm of China Construction Bank said yesterday.
CCB International Securities’ upbeat forecast came against the backdrop of a sixth-day fall in the index, which closed at 18,026.84 yesterday, down 1.78 per cent. The gauge of Hong Kong blue chips broke below 18,000 points yesterday. It has lost about 5 per cent this month.
The uncertainty in global markets as well as the drop in Japanese manufacturers’ confidence yesterday weighed on Asian stock markets. The CSI 300 Index, which tracks stocks on the Shenzhen and Shanghai exchanges, dropped 2.36 per cent to 2,340.79 points. The Nikkei 225 slid 1.66 per cent to 8,377.37 points.
While some stocks look interesting in terms of valuation, Asian markets could still drop 10-15 per cent, as they have still not reached the low valuations seen in the last downturn, said Louisa Lo, deputy head of equities, Asia excluding Japan, for Schroder Investment Management (Hong Kong).
The mainland - which will see its economic growth slow to about 8 per cent next year from above 9 per cent this year on weaker export growth - needs to press hard to shore up its economy and domestic consumption by cutting interest rates, said Banny Lam, associate director and chief global economist of CCB International Securities.
Beijing started loosening monetary policy subtly by cutting the banks’ required reserve ratio (RRR) by 50 basis points on December 5, which is considered a curtain-raiser for other, stronger credit relaxations, Lam said. He predicted that there would be another three cuts in the RRR of 50 basis points each next year and three interest rate cuts totalling 75 basis points. “The first rate cut will take place in March, just before the National People’s Congress meeting takes place,” he said.
Hong Kong stocks had fallen to their lowest point since the last downturn in terms of price-earning ratios, creating a window for “bottom fishing”, although the correction in the stock market was not yet finished in the short run, said Peter So, managing director and co-head of research at CCB International Securities. He said he expected the Hang Seng would not fall below 16,000 points this year and would rise to 25,000 points next year. Industries with heavy debt levels would particularly benefit from the credit loosening on the mainland, including the property, shipping and cement sectors.
However, Lo was more conservative about the ability of China to defy the global downturn, saying the flexibility of its policy tools was not as great as in the 2008 downturn, when it used 4 trillion yuan (HK$4.8 trillion) as stimulus.
“China is now likely to transition to a lower gross domestic product growth trajectory,” she said.
So far, she said, there had been no “decoupling” between the performance of Asian and global stock markets after the outbreak of the European debt crisis, because many Asian companies are export-oriented.