Investment

Stocks to remain in black

By Li Xiang (China Daily)
Updated: 2010-08-30 12:47

BEIJING - The upward momentum of the Chinese stock market is likely to continue despite volatile trading last week amid renewed worries of the government's tightening moves in the property market, analysts said.

The benchmark Shanghai Composite Index managed to close above the psychologically important level of 2,600 points after swinging between gains and losses.

Property stocks experienced volatile trading in the past week after the benchmark Shanghai Index rebounded by 10 percent on the prospect that the government will relax policy tightening to help prevent a sharp slowdown in the nation's economic growth.

The performance of the property sector has become the key indicator of the overall market trend for investors to gauge Beijing's next policy move.

The National Development and Reform Commission (NDRC), China's top economic planner, said last week that regulation of the property market remains a daunting task and a "sharp pickup" in property prices is still a "key risk" to the country's economic growth.

The statement triggered a new round of concerns among investors that Beijing may further tighten its grip on the country's property market in the coming months.

However, analysts said that extra tightening measures are unlikely as the current policy curbs in the country's property market are expected to achieve the desired results.

"We believe the tightening measures in the housing market that the government is adopting will finally take effect with increased land supply and dampened speculation demand," Shen Jianguang, chief economist at Mizuho Securities in Hong Kong said in a report.

"No extra measures are necessary or likely - such as property taxes - to achieve stabilization in sales volume coupled with some moderate declines in housing prices," he said.

China is due to release its August purchasing managers' index (PMI), a leading indicator of economic health on Wednesday. The manufacturing gauge has fallen for two consecutive months to 51.2 percent in July, barely above the expansive baseline of 50 percent.

"China's economy is still decelerating and we believe there is no need, nor are we likely to see further tightening policies," Shen said.

Analysts said that a gradual shift in China's policy stance from tightening to loosening is still ongoing as evidenced by ample liquidity in the inter-bank money market and a string of regional development plans that require heavy infrastructure investment.

In the meantime, the inflation rate will hold the key to projecting Beijing's future policy stance. Although economists have revised their projection of China's consumer price index upward in August, the possibility of a continued surge in food prices is expected to be small with ample food supplies and government subsidies and it is unlikely there will be any interest rate hikes for the remainder of 2010.

China Daily