Stocks News
- Stocks may face correction, Goldman says
Date: 11-May-2007 Sources: (Shenzhen Daily)
CHINA'S stocks, which accounted for half the trading in Asia Wednesday, may face a correction as earnings can't justify the rally that's made them the world's biggest gainers this year, according to Goldman Sachs & Co.
China's CSI 300 Index, which tracks yuan-denominated A shares listed on the country's two exchanges, has climbed 85 percent in U.S. dollar terms in 2007, the best performance among the world's 90 major stock benchmarks. It's also the world's most expensive key stock index, at 42 times reported earnings, more than double the Morgan Stanley Capital International Asia Pacific Index's 19 times.
'Current valuations are demanding and seem to have outpaced the improvement in market fundamentals,'' analysts at Goldman including Thomas Deng wrote in a report Thursday. The risk of market euphoria is building up, according to the report.
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 companies listed in the A-share market grew 82 percent in the first quarter from a year earlier, beating analyst estimates, Goldman said.
Negative real interest rates and property-tax increases announced over the past two years are also helping steer more of the nation's 17.2 trillion yuan (US$2.2 trillion) in household savings into the market.
The government prohibits banks from offering deposit rates that exceed the central bank's one-year deposit rate, which is currently 2.79 percent. Inflation in March accelerated to a two-year high of 3.3 percent, official figures show.
'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, president of Cabot Money Management.
Domestic investors opened 385,121 new trading accounts May 8, the highest daily tally since records were first published by the China Securities Depository and Clearing Corp. in June 2005.
A total of US$48.96 billion of equities were traded on the Shanghai and Shenzhen stock exchanges Wednesday, about the same as the US$48.98 billion total for the rest of the Asia-Pacific region.
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