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Bonds might outperform stocks this year

By Zhang Shidong and Judy Chen (China Daily)
Updated: 2010-03-04 11:43

SHANGHAI - China's bonds may outperform stocks this year as the government keeps inflation under control, according to Fortune SGAM Fund Management Co, a venture with Societe Generale SA, France's second-largest bank.

"Bonds have been outperforming and I expect that to continue," Tan Weisi, Shanghai-based head of the fixed-asset department at Fortune, with about $9 billion of assets under management, said in an interview.

"If CPI doesn't shoot up to say 5 percent, there's no incentive to raise the interest rate. The government is really successful in controlling inflation expectations and right now the expectations are under control."

Consumer prices increased 1.5 percent in January, slowing from growth of 1.9 percent a month earlier, according to the statistics bureau. Easing inflation and signs of slowing economic growth may prompt the central bank to postpone raising borrowing costs. A Bloomberg survey of 17 economists conducted last month predicts rates will be increased by the end of June.

The Shanghai Composite Index has dropped 6.3 percent this year amid concern the government will increase interest rates for the first time since December 2007. China's bonds have gained 1.3 percent in 2010, according to a composite debt index compiled by Chinabond, the nation's largest debt-clearing house.

"The government will expand the corporate bond market, which is the future of the Chinese fixed-income market," said Tan.

The benchmark stock index surged 80 percent last year as investors bet record-low rates, a $586 billion stimulus program and $1.6 trillion of State-directed lending would boost profits at the fastest-growing companies. The world's third-largest economy expanded at a 10.7 percent annual rate in the fourth quarter, up from a revised 6.2 percent in the first three months of last year.

Fortune SGAM Fund Management is 49 percent owned by the asset management unit of Societe Generale and the trust arm of Baosteel Group Corp, China's biggest steelmaker, holds the remainder.

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