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Economist: Guard against investment fever (2)

(China Daily)

13:17, July 19, 2012

"To offset the liquidity shortage caused by falling foreign purchases, the authorities will adopt more flexible and foresighted monetary policies based on their overall prudent stance, including one to three reserve requirement ratio cuts.

"But considering the still high broad money supply (M2) to GDP ratio, and possible rebounds in inflation and housing prices, the money supply should not grow too fast," the bank said.

To that end, there isn't much room for interest rate cuts to any large extent, though one more may be in the pipeline to resolve the financing strains faced by companies.

"We were always trying to find the reasons why we're different from other countries. Actually, every country has its own unique advantages, but it may not be enough to help you out of the crisis," said Qu Lewei, a fund manager with Schroders Fund Management Co Ltd.

"China's economic bubble was already big during 2006 and 2007, but investors were confident that the companies' good performance in the stock market was enough to 'fill the bubble'.

"But it has been proven that when the demographic bonus is diminishing, there is no way to avoid economic downturn," he said.

"If the eurozone crisis is not properly handled, and China's macroeconomic adjustment fails to achieve its goals, there will be a great chance that confidence in the A-share market will collapse again," said Hong Hao, a researcher with BOCOM International.

But Qu wasn't that pessimistic. "There is no need to panic, as we're already at the bottom, and there are no new challenges which we don't already know about."

Qu said the stock market wouldn't dip much further, and there are still opportunities in industries such as the non-banking financial sector, as well as the environmental protection, pharmaceutical, and high-end equipment manufacturing industries.

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