Shares expected to jump around 20% this year as 'the bear is over'

Stocks rose to an eight-month high on Monday, a development interpreted by analysts as the end of the bear market that stalled markets most of last year.

The Shanghai Composite Index soared 3.06 percent to 2,311.74 points, the highest since June.

"The bear is over," said Chen Li, the head of China equity strategy at UBS Securities Co Ltd as the SCI exceeded the 2,300 level after rebounding from a low of 1,900 in early December.

A shares are expected to rise about 20 percent in 2013, Chen said.

"The dynamic price-to-earnings ratio for 2012 didn't decline, an obvious signal that the bear market is ending. And 2013 is expected to see a small bull market arrive," Chen said.

In addition, the Shenzhen stock index climbed 3.31 percent, or 298.54 points, to 9,316.27 on Monday. The Hang Seng China Enterprises Index of mainland companies traded in Hong Kong climbed 1.36 percent.

Monday's rise in the Shanghai market was led by the aerospace and aviation sector with a 9.5 percent increase, followed by the brokerage sector at 5.85 percent. The banking sector also performed well, rising 3.39 percent.

In the past year, weak global market demand and China's slowing economic growth have pressured the country's stock market, hurting investor confidence.

But many analysts have said that this year will see the market rebound thanks to the economic recovery.

"The heavy-truck, cement and other mechanical engineering companies in the periodic plate will perform better in the first quarter, while the bank, property, automobile and household electrical appliances industries are also expected to raise the valuation for the whole year," Chen said.

"The largest risks we face in the next two quarters are the rapid increase in dealing amounts and the price of properties all over the country. Our largest concern is whether the restrictions on the real estate market will take effect," Chen said. The Shanghai index has increased by nearly 18 percent since Dec 3.

More than 50 stocks climbed by their 10 percent daily limit in Shanghai and Shenzhen on Monday.

The recovery has three main causes, analysts said.

The first is a speech by Guo Shuqing, chairman of China Securities Regulatory Commission

Guo said at a conference in Hong Kong on Monday that the mainland could substantially increase the quota for foreign institutional investors to invest in domestic stocks as a means to develop the market.

The second factor is the government data report that was released last week, which showed China's trade surplus increased unexpectedly in December, demonstrating the signs of recovery in the domestic economic situation.

According to the National Bureau of Statistics, China's exports rose 14.1 percent year-on-year in December, exceeding previous expectations on a 5 percent gain and up from a 2.9 percent increase in November.

In addition, analysts expect to see more signs of improvement when China releases other government data on Friday, including factory output, investment and retail sales.

Stephane Deo, the global head of asset allocation of UBS Securities, said UBS expects the global economy to increase 3.4 percent, slightly higher than the previous year.

Deo added that majority of investors are still interested in investing in the Chinese stock market.

"As the stock market is still recovering, new emerging market will receive the largest effects, and provide the most potential for investments," Deo said.

The third factor is the overseas market.

The Japan government announced on Jan 11 a $224 billion stimulus plan to overcome deflation and boost its economy.

According to the Japanese government, this stimulus plan will boost its domestic GDP by about 2 percent this year, and create about 600,000 jobs .

After the announcement, Japan's stock market index increased by 1.4 percent to 10,800 points, its highest level since February 2011.

There are more reasons behind the revival of the Chinese stock market, the UBS said.

"I am quite confident with the valuation of the A-share market, which will recover with the increase on price-earnings ratio from eight times to higher than nine times," Chen said.

Chen added that the risk premium of the A-share market reached a historical peak in December, and the valuation of risk premium has started going down with a strong performance of A shares, and the overall liquidity for the market in 2013 is getting much better than in 2012.

In addition, "as the financing products supplied by the banks will be monitored with regulations by the government for the year, diverted capital will come back to the A-share market", Chen added.

Zhang Qi, an analyst with Haitong Securities Co Ltd, also was optimistic about the market.

"The economic situation has started recovering since December, so the stock market is also warming up," he said.

The recovery of the market is caused by the loosening monetary policy and the improving economic environment, he said.

Zhang predicted that shares will continue to rebound before Spring Festival, which is on Feb 10.

Contact the writers at yuran@chinadaily.com.cn and huangtiantian@chinadaily.com.cn

(China Daily 01/15/2013 page16)