Hamon Market Update: China’s growth – Our view 7.5% is a good GDP number

2012年03月06日 星期二

In his opening speech addressed to the National People Congress in Beijing, Premier Wen Jiabao announced a slightly lower growth target for 2012 of 7.5% than the standard 8% he has targeted, and exceeded, for the last 5 years.

The markets have used this as an excuse to sell off after strong rallies since January. We believe any correction is healthy and a buying opportunity.

  1. We believe 7.5% real GDP growth is a good number, as it shows the government believes it can create jobs in the domestic economy, with less reliance on exports or investment driven growth.
  2. Inflation is under control. Target inflation of 4% with salaries growing at 12% will be very positive for long-term domestic consumption. Food prices should decline further in Q2 leaving room for fuel and power tariff reform.
  3. Property prices under control. The cooling of the property market has removed some excess lending and reduced potential banking risks.
  4. More balanced economic growth, focus on domestic consumption as the engine for future growth and will balance the previous export and investment led growth. These will all create a more balanced economy.
  5. Government officials reshuffle. China will have its new president and premier confirmed in the 2H 2012. A lot of policies have been put on hold lately given official reshuffle has not been confirmed. We believe by the third quarter of 2012 in the property markets, a number of policies would see more certainty when the top leader name lists get finalized.
  6. Selective tightening measures in the property markets will continue, but should be more moderated compared to 2011. Therefore, we should see liquidity start to improve and more required reserve ratio cuts, which would eventually push up demand for property and trigger inflow to capital market and expand the price-to-earnings multiple of the market.
  7. Valuations, China is still trading below historical avg. valuations, and is one of the cheapest markets globally. China should see at least 13% EPS growth in 2012, and higher growth in 2013 when inflation further stabilises and the new leadership is fully established.