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By Darren Boey
May 10 (Bloomberg) -- China's stocks may face a ``correction'' as valuations have exceeded earnings prospects after the benchmark index almost tripled in the past year, according to Goldman Sachs Group Inc.The CSI 300 Index has climbed 82 percent this year, the best performance among 90 stock benchmarks tracked by Bloomberg, after more than doubling in 2005.
`Current valuations are demanding and seem to have outpaced the improvement in market fundamentals,'' analysts at Goldman including Thomas Deng wrote in a report today. The ``risk of market euphoria is building.''
Goldman's comments come less than a week after central bank Governor Zhou Xiaochuan expressed concern about the rally, which has made China's stocks the most expensive among the world's major markets. The gains have drawn investors in record numbers and made the nation's stock markets the busiest in Asia, ahead of Japan and Hong Kong.The CSI 300, which tracks yuan-denominated A shares listed on the country's two exchanges, today rose 0.6 percent to 3724.51 in Shanghai, the highest close since the measure was introduced in April 2005. It's valued at 42 times reported earnings, more than double the Morgan Stanley Capital International Asia Pacific Index's 19 times.
Shares such as China Merchants Bank Co. and Citic Securities Co. are surging as economic growth that's topped 10 percent for the last four years boosts corporate earnings. Profits at Chinese companies listed in the A-share market grew 82 percent in the first quarter from a year earlier, beating analyst estimates, Goldman said. China Merchants, the nation's seventh-largest lender, and Citic Securities, the No. 1 publicly traded brokerage, are the biggest contributors to the CSI 300's gains in the past year. First-quarter earnings at China Merchants climbed 72 percent, while Citic Securities reported a 10-fold surge in profit.
Government restrictions that keep bank deposit rates below the rate of inflation and property-tax increases announced over the past two years are also helping steer more of the nation's 17.2 trillion yuan ($2.2 trillion) of household savings into equities. China's investors opened 385,121 new accounts at brokerages on May 8, the highest daily tally since records were first published by the China Securities Depository and Clearing Corp. in June 2005. The value of trades on the nation's two bourses yesterday totaled $48.96 billion, almost matching the combined turnover of $48.98 billion recorded on the Asia-Pacific region's other exchanges, according to data compiled by Bloomberg.
``There's a huge amount of wealth looking for a home in China and they're not happy with putting it in the bank,'' said Robert Lutts, who manages about $500 million as president of Cabot Money Management in Salem, Massachusetts.
A net 175 billion yuan of cash flowed in to Chinese stocks in April, according to a report published yesterday by the research arm of Shanghai-based Shenyin & Wanguo Securities Co. China's mutual fund assets jumped 33 percent to 1.14 trillion yuan in the first quarter, according to industry researcher Z- Ben Advisors Ltd., which is also based in Shanghai.
The stock market ``could develop into a bubble if speculative activity continues to spread among retail investors,'' the Goldman analysts wrote. ``If the negative real interest rates are left unchecked, asset inflation may soon advance into unsustainable territories.'' ... The China Securities Regulatory Commission on March 20 barred companies from using share-sale proceeds to invest in stocks. Policy makers may announce further measures to cool the stock market, economists at UBS and Standard Chartered Plc said.The CSRC may tighten share-buying restrictions further and impose taxes on stock-trading profits, Jonathan Anderson, UBS's Hong Kong-based chief Asia-Pacific economist, wrote in a report today. The government might also raise interest rates, said Stephen Green, an economist at Standard Chartered Plc.
``If nothing happens, the Shanghai Composite hitting 5,000 within one month is possible,'' Shanghai-based Green wrote in an e-mail. ``The likelihood is for the index to continue upward if we do not see some action from Beijing to cool things down.''
A slump in China's stocks may be felt beyond its borders. A record 9.2 percent plunge in the CSI 300 on Feb. 27 triggered a five-day rout that wiped more than $3.3 trillion from the market value of equities worldwide.A more recent 4.7 percent drop on April 19 had relatively little impact, with the Standard & Poor's 500 Index losing 0.1 percent that day and the MSCI World Index slipping 0.4 percent.
If there's another drop in China, other markets ``will take it in stride,'' said Andrew Clarke, a sales trader at SG Securities Hong Kong Ltd. ``I think that was a shock the first time around. There was another big drop in China about a month later and world markets didn't react.''
www.bloomberg.com/apps/...20601080&sid=aXe5noqHM4ps&refer=asia
May 10 (Bloomberg) -- China's stocks may face a ``correction'' as valuations have exceeded earnings prospects after the benchmark index almost tripled in the past year, according to Goldman Sachs Group Inc.The CSI 300 Index has climbed 82 percent this year, the best performance among 90 stock benchmarks tracked by Bloomberg, after more than doubling in 2005.
`Current valuations are demanding and seem to have outpaced the improvement in market fundamentals,'' analysts at Goldman including Thomas Deng wrote in a report today. The ``risk of market euphoria is building.''
Goldman's comments come less than a week after central bank Governor Zhou Xiaochuan expressed concern about the rally, which has made China's stocks the most expensive among the world's major markets. The gains have drawn investors in record numbers and made the nation's stock markets the busiest in Asia, ahead of Japan and Hong Kong.The CSI 300, which tracks yuan-denominated A shares listed on the country's two exchanges, today rose 0.6 percent to 3724.51 in Shanghai, the highest close since the measure was introduced in April 2005. It's valued at 42 times reported earnings, more than double the Morgan Stanley Capital International Asia Pacific Index's 19 times.
Shares such as China Merchants Bank Co. and Citic Securities Co. are surging as economic growth that's topped 10 percent for the last four years boosts corporate earnings. Profits at Chinese companies listed in the A-share market grew 82 percent in the first quarter from a year earlier, beating analyst estimates, Goldman said. China Merchants, the nation's seventh-largest lender, and Citic Securities, the No. 1 publicly traded brokerage, are the biggest contributors to the CSI 300's gains in the past year. First-quarter earnings at China Merchants climbed 72 percent, while Citic Securities reported a 10-fold surge in profit.
Government restrictions that keep bank deposit rates below the rate of inflation and property-tax increases announced over the past two years are also helping steer more of the nation's 17.2 trillion yuan ($2.2 trillion) of household savings into equities. China's investors opened 385,121 new accounts at brokerages on May 8, the highest daily tally since records were first published by the China Securities Depository and Clearing Corp. in June 2005. The value of trades on the nation's two bourses yesterday totaled $48.96 billion, almost matching the combined turnover of $48.98 billion recorded on the Asia-Pacific region's other exchanges, according to data compiled by Bloomberg.
``There's a huge amount of wealth looking for a home in China and they're not happy with putting it in the bank,'' said Robert Lutts, who manages about $500 million as president of Cabot Money Management in Salem, Massachusetts.
A net 175 billion yuan of cash flowed in to Chinese stocks in April, according to a report published yesterday by the research arm of Shanghai-based Shenyin & Wanguo Securities Co. China's mutual fund assets jumped 33 percent to 1.14 trillion yuan in the first quarter, according to industry researcher Z- Ben Advisors Ltd., which is also based in Shanghai.
The stock market ``could develop into a bubble if speculative activity continues to spread among retail investors,'' the Goldman analysts wrote. ``If the negative real interest rates are left unchecked, asset inflation may soon advance into unsustainable territories.'' ... The China Securities Regulatory Commission on March 20 barred companies from using share-sale proceeds to invest in stocks. Policy makers may announce further measures to cool the stock market, economists at UBS and Standard Chartered Plc said.The CSRC may tighten share-buying restrictions further and impose taxes on stock-trading profits, Jonathan Anderson, UBS's Hong Kong-based chief Asia-Pacific economist, wrote in a report today. The government might also raise interest rates, said Stephen Green, an economist at Standard Chartered Plc.
``If nothing happens, the Shanghai Composite hitting 5,000 within one month is possible,'' Shanghai-based Green wrote in an e-mail. ``The likelihood is for the index to continue upward if we do not see some action from Beijing to cool things down.''
A slump in China's stocks may be felt beyond its borders. A record 9.2 percent plunge in the CSI 300 on Feb. 27 triggered a five-day rout that wiped more than $3.3 trillion from the market value of equities worldwide.A more recent 4.7 percent drop on April 19 had relatively little impact, with the Standard & Poor's 500 Index losing 0.1 percent that day and the MSCI World Index slipping 0.4 percent.
If there's another drop in China, other markets ``will take it in stride,'' said Andrew Clarke, a sales trader at SG Securities Hong Kong Ltd. ``I think that was a shock the first time around. There was another big drop in China about a month later and world markets didn't react.''
www.bloomberg.com/apps/...20601080&sid=aXe5noqHM4ps&refer=asia
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