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          Money

          Rally in Chinese stocks 'has legs'

          By Allen Wan (China Daily)
          Updated: 2010-10-28 10:07
          Large Medium Small

          SHANGHAI - This month's rally in Chinese stocks "still has legs" as the nation's economic growth exceeds expectations and the world avoids a double-dip recession, said Michael Yoshikami, investment strategist at YCMNet Advisors.

          The Shanghai Composite Index has jumped 13 percent since the end of September, the most among 89 benchmark gauges tracked globally by Bloomberg. Gains have slowed since China raised borrowing costs on Oct 19 for the first time since 2007 as policymakers sought to avert an asset-price bubble. The stock index slid 1.46 percent to 2997.05 at the 3 pm close on Wednesday.

          October's gains by the Shanghai Composite have been "pretty incredible", Yoshikami, who oversees about $1 billion at Walnut Creek, California-based YCMNet, said in a phone interview on Wednesday. "While it can't continue to rally as we have seen, it still has legs."

          Yoshikami, who was named by Barron's as one of the Top 100 Independent Financial Advisors for 2009, said he was optimistic about Chinese stocks because the global economy will avoid a recession and experience "tepid" recovery instead. He joins Aberdeen Asset Management Plc's Nicholas Yeo in saying the unexpected increase in interest rates underscored policymakers' confidence in the recovery.

          "Yes, China has risks from rates going up but they would not be raising rates" if not for the economy's strength, Yoshikami said. "China is growing more than people think."

          Related readings:
          Rally in Chinese stocks 'has legs' Q3 GDP growth slows, but economy remains buoyant
          Rally in Chinese stocks 'has legs' Experts defend lag in economy
          Rally in Chinese stocks 'has legs' Economic uncertainties check stock market rally
          Rally in Chinese stocks 'has legs' 
          China's stocks drop below 3,000 points - Oct 27

          China's economy grew 9.6 percent in the third quarter, exceeding economists' median 9.5 percent estimate and slowing from the previous quarter's 10.3 percent expansion.

          Yoshikami, who invests in Chinese exchange traded funds, said he likes consumer companies and is cautious on property developers and banks.

          "China's banks have the issue of property risk," he said. "There's not a risk of a collapse but a risk of a correction but not like what happened in both the United States and Europe."

          Policymakers have grappled this year with record property-price gains after record lending and a 4 trillion yuan ($600 billion) stimulus package pumped up growth during the financial crisis. The government has this year tightened down-payment requirements, suspended loans for third-home purchases, and pledged to speed trials of a property tax. Nomura Holdings Inc predicts average residential prices may fall as much as 10 percent by the end of next year.

          Yoshikami said this year's rally for emerging markets is "justified" given the economic outlook for developing nations.

          "The gains are justified when you have a growth rate that is five times larger than the US," he said. "Why shouldn't their assets be priced more expensively?"

          The MSCI Emerging Markets Index has gained 12 percent this year as investors seek higher yields amid near-zero interest rates in the US and Japan.

          Bloomberg News

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