Mobius: Lending curbs may help economy

08:58, January 28, 2010      

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China's lending slowdown may benefit the domestic economy by reducing risk and investors should still buy shares of the nation's banks, investor Mark Mobius said.

"I don't see a slowdown in lending as a bad thing," Mobius, who oversees about $34 billion in emerging markets funds as chairman of Templeton Asset Management Ltd, said yesterday. "It moderates risk to some degree because people don't go overboard."

Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit after a surge in lending in the first half of this month, according to people familiar with the situation. That's stoking concern a government clampdown on lending will slow growth in the world's third largest economy.

Recent gains by Chinese stocks had been overdone, while local banks have yet to tap fully potential demand for individual loans, Mobius said. The Shanghai Composite Index has dropped as much as 23 percent from a 14-month high set in August, after having doubled from its November 2008 low. The measure is currently 13 percent below last year's peak.

"The market was due for a correction," he said. "I don't see the start of a huge bear market any time soon. As the Chinese get more into spending rather than saving, the banks will do very well. The consumer market really has just scratched the surface."

Global equities tumbled last week after higher-than-expected economic growth in China fueled concern that borrowing costs will rise to prevent the economy from overheating.

GDP expanded 10.7 percent while consumer prices rose a higher-than-estimated 1.9 percent in December from a year earlier, according to official data.

Every major stock index tracked globally by Bloomberg has fallen this year, amid proposed crackdowns by the US on the banking industry and unwinding of government stimulus measures worldwide. The MSCI Emerging Markets Index, which jumped 75 percent in 2009, has dropped 5.3 percent this year.

Biggest risks

The three biggest risks to China are the country's reliance on demand for its exports, the supply of money, and potential losses by companies, in China and overseas, from derivatives, Mobius said.

Mobius said on Jan 25 in Bangkok that he still doesn't believe there's a property bubble in China. He had said on Jan 7 he's buying shares of Chinese developers because consumer demand will increase and government efforts won't hurt economic growth.

Property prices in 70 cities across China climbed 7.8 percent in December, the fastest pace in 18 months, a government report showed this month. China's property sales jumped 75.5 percent to 4.4 trillion yuan last year, led by Zhejiang province and Shanghai.

'Too much demand'

China's property-market data may be masking the degree that speculation is driving prices in some of the larger cities, a World Bank economist said on Jan 25. Only some areas in the Chinese economy are overheating, such as the Shanghai property market, Mobius said. "There's too much demand, not enough supply," he said. "If you travel around the country, this is not the average situation."

Mobius also said the price of commodities, including some precious metals, will climb. Metals prices fell yesterday on concern that China's measures to curb economic growth may hurt demand. "Commodities are going to continue their upward trend," he said. "I'm a big fan of palladium. It may even outpace platinum."

Source: China Daily
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