An assistant paints a sale sign on a shop window in Hong Kong. JP Morgan is upbeat on sub-sectors such as entertainment, high-end consumption and healthcare in the region. Mike Clarke / AFP

JP Morgan remains bullish about the outlook for the consumption sector in the Greater China market, retaining an "overweight" rating on the sector, saying that strong economic growth on the mainland will provide a further boost to incomes.

The bank's research unit is particularly upbeat on such sub-sectors as entertainment, high-end consumption and healthcare, which are expected to benefit further from economic advancement and income growth.

"Despite inflation pressure, rising asset prices and policy tightening concerns, we remain optimistic about the Chinese economy as it undergoes long-term re-balancing towards domestic consumption and re-positioning towards more sustainable, higher-quality and potentially more profitable growth," Howard Wang, head of Greater China at JP Morgan Asset Management, said Wednesday while briefing the media on the market outlook for the region in 2011.

"We expect the retail sector, backed by government policies, favorable demographics and income growth, to outperform the overall economy," Wang added.

His optimism is buoyed by several things. Domestic consumption, although growing, still accounts for a small share of the overall economy, and approximately only 36.6 percent of the country's GDP. In the US and Japan, that share is up to 70 percent and 57.6 percent respectively. In India, domestic consumption accounts for around 57.2 percent of the nation's GDP.

Meanwhile, Chinese households and the Central Government are in a fiscally sound position to spend more money.

"China is completely unleveraged in terms of the mortgage loans as a percentage of the country's GDP," Wang added.

So are Chinese households, said Wang, given the extremely low household gearing ratio compared to that in other countries.

Consumer loans were only 16 percent of the country's GDP in 2009, much lower than the 95 percent and 47 percent seen in the US and Japan, respectively, data from Goldman Sachs shows.

And all these factors help paint a bright picture for the consumption sector going forward, noted Wang.

"You are being paid to play in China right now," he said.

Among others, Wang said investors should "feel good about the A-share big caps," which are still "very cheap" at the moment.

And the mainland growth story also bodes well for Hong Kong in 2011. The JP Morgan banker remained bullish on Hong Kong's banking sector, which he said will gain from overflow loan growth from the mainland and further internationalization of the yuan.

Wang also took a positive view on the city's property sector amid "favorable supply and demand conditions".

"Despite further policy headwinds we may see in the residential property market, we expect a solid year for retail and office property prices given economic fundamentals," said Wang.

China Daily

(HK Edition 01/06/2011 page3)