Chinese Equities to Greet Bullish Year in 2001Chinese equity market is expected to have another spectacular year in 2001, with its relatively high economic growth, increasing corporate profitability and China's accession into the World Trade Organization (WTO).China has huge financial needs for growth to be sustained, according to the Morgan Stanley Dean Witter, predicting that a total of 360 billion yuan (43.5 billion U.S. dollars) will be raised from local and foreign stock markets in 2001, with further substantial fund-raising thereafter. China is likely to have a bullish equity market in 2001 and a volatile but upward sloping market is expected for the next six months, said Henry Ho, executive director and Chinese strategist of Morgan Stanley Dean Witter, Monday in Hong Kong. Economists believe that a forthcoming booming of the Chinese equities will be not merely based on the China concept, but its remarkable economic performance. The year of 2000 has been a tremendous "year of the dragon," as China swept up the lion's share of the new equity capital in non- Japan Asia. Credit Suisse First Boston (CSFB) expects 2001 to be another stellar year, albeit slightly less spectacular than 2000, due to weaker global economic conditions. CSFB Chief Economist Dong Tao estimates China will be able to manage a GDP growth of 7.8 percent this year and this will make China one of the few bright spots in Asia. While generally Chinese companies have been demonstrating disappointingly low return on equity (ROE) despite strong economic growth, emerging indicators are pointing to a ROE upswing as China prepares itself to the WTO accession, said Henry Ho. "The real restructuring in China that brings benefits to investors by way of high returns is finally arriving." he said. " Our economics team forecasts an end to price deflation and a resumption of stable GDP growth, which would provide a positive framework for corporate profitability." Relatively high growth is absolutely critical to China's ability to maintain or even accelerate its reform momentum, since it needs strong cash inflow to finance its reforms. With continued strong inflow of hard currency, China is unlikely to have to resort to competitive devaluation to sustain growth. As a result, China will be one of the few places in Asia where currency risk is not a major concern. The stable currency will also contribute to a bullish stock market, Henry Ho said. Moreover, China is one of the countries in Asia least affected by the expected global slowdown, electronics down-cycle and high oil prices. Still, global growth, particularly that in the US, will adversely affect China's exports. CSFB expects China's exports to grow 7.8 percent in 2001, a sharp deceleration from 2000. Despite a slowing global economic environment, 2001 will be another banner year for China. With its commitment to WTO accession requirements and integration into the global economy, China's future reforms will be firmly anchored in the direction of best global practices. The adoption of best global practices will not only make the Chinese economy more understandable and predictable, but also make Chinese companies more efficient, competitive and profitable, according to the CSFB. Improving policy transparency and consistency, as well as corporate profitability, should help lower the risk premium on Chinese equity over time, which makes investing in Chinese equities a much more rewarding experience for investors in the future. |
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