About 45 percent of the 4-trillion-yuan stimulus package will be invested in infrastructure projects like railways, highways, airports and power grids, and another 25 percent will be spent on post-disaster reconstruction. This will benefit some infrastructure-related stocks. China Daily

The impact of China's 4-trillion-yuan economic stimulus plan will be felt in the second half of next year, during which the A and H-share markets will see subsequent rebound, JPMorgan Chase & Co said in a research report published yesterday, adding that it is good time for long-term investors.

The Shanghai stocks have shown signs of recovery. The benchmark CSI 300 Index has advanced 24 percent in the past month, the best performer in the world as well as the region. The rebound coincided with the central government's announcement of a stimulus package and the largest interest rate cut by the People's Bank of China in 11 years.

"Although the economic news flow is likely to remain negative in the near-term and corporate earnings will continue to see a period of weakness, we expect Chinese equity markets to stabilize in early next year, as Chinese equities have become more appealing," said Jing Ulrich, managing director and chairman of China equities at JPMorgan.

The recovery on the mainland stock markets will undoubtedly benefit Hong Kong-listed mainland companies, she said at a press briefing.

She said the MSCI China Index is currently trading at 8.3 times earnings compared with a long-term average of 16 times, with stocks' average dividend yields of 4.3 percent compared favorably with deposit and treasury rates. And the country's relatively strong economy supports her optimism.

Moreover, the State Council said that a substantial portion of the investments must be injected into projects before the National People's Congress (NPC) and Chinese People's Political Consultative Conference (CPPCC) sessions next spring. This suggests that the effects of the stimulus package should be felt from the second half of 2009, the research report said.

About 45 percent of the 4-trillion-yuan stimulus package will be invested in infrastructure projects like railways, highways, airports and power grids, and another 25 percent will be spent on post-disaster reconstruction in Sichuan. This will benefit some leading commodity plays, the firm said.

Favoring cement over other infrastructure-related commodities, Ulrich said: "This is because cement can't be shipped around; it is mainly to meet local demand." She added that leading cement plays such as Anhui Conch Cement are worth considering in terms of long-term investment.

"Investors can also look at leading coal plays such as Shenhua and China Coal," she added.

Although corporate earnings growth on the mainland declined to minus 13.1 percent in the third quarter, and will get worse in the fourth, "it won't surprise the market," Ulrich said.

(HK Edition 12/09/2008 page3)