On a day that the United States purposely crashed two rockets on the moon, China opted for its own meteoric launch by sending shares of its largest index up 4.8% today. The Chinese returned from their weeklong National Day Holiday and bid Chinese stocks to their third highest gain of 2009.
Starting the holiday, though, China was seen as the weak link among the other BRIC countries. China’s stocks were the worst performers among Brazil, Russia and India in the third quarter, but today’s session has renewed hopes that valuations will rebound as economic growth in the country continues to expand.
“They are the best value equity play anywhere in the world,” said Robert Froehlich, senior managing director at Harford Financial Services Group, which oversees $352 billion, to Bloomberg News. “Valuations and the Chinese consumer are a one-two punch.”
The unique mark about today’s session is all 893 stocks on the Shanghai Composite posted gains. PetroChina, the index’s most heavily weighted stock, ended up 3.7% at 13.17 yuan after large-cap shares underperformed the market during the third quarter. Top lender Industrial and Commercial Bank of China added 3.56% to 4.94 yuan, while the largest housing mortgage lender, Construction Bank of China, added 3.94% to 5.80 yuan. Volume was mild.
Reuters reports the bullish sentiment may be sustainable over the near term, but cautions investors:
The Shanghai market is expected to be supported by fresh signs of economic recovery in China when the government announces key September economic data next week, but remains under pressure from large supplies of new shares, among other negative factors.
“While strong September figures are expected to give the market a shot in the arm in the medium term, the index’s short-term upside will still be limited because of factors including cautious investor sentiment,” said Cao Xuefeng, senior stock analyst at Western Securities in Chengdu, to Reuters. “A clear sign of caution today was that turnover wasn’t even able to breach the moderately active level of 100 billion yuan.”
Even with the cautious overtones, many heavyweight money managers continue to look to China as a profit-making opportunity. The value proposition the country provides investors is rare during the current economic crisis: Government intervention with solid growth and a consumer willing to spend, and borrow, money.
“China is where we are putting most of our money out of the BRICs,” Peter Schiff, president and chief global strategist for Darien, Connecticut-based Euro Pacific Capital, whose clients have more than $2 billion in assets, said to Bloomberg News. “Valuations are certainly better there. That is where the growth and profits are going to be.”
As Bloomberg reports:
China’s gross domestic product expanded 7.9 percent in the second quarter, rebounding from the slowest growth in almost a decade as a $586 billion government stimulus package and record new loans of $1.1 trillion boosted industrial production and retail sales.
The economy will grow 8.7 percent in the third quarter, 9.9 percent in the fourth and 9.5 percent in 2010, according to median forecasts in Bloomberg surveys.
Among the BRICs, “China is the best because of the growth in the economy,” said Mark Mobius, who oversees about $25 billion as Singapore-based executive chairman at Templeton Asset Management Ltd., in an interview to Bloomberg News. “I think there will be a lot of surprises next year in terms of recovery.”
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