Real green 27% Friday

+27% is the average forecast from 13 investment banks and stockbrokers for the increase this year in the value of Chinese equities as measured, principally, by the Shanghai Composite. Note, too, there is only one Jonah (at Guotai Junan, China’s number two broker) who is on zero; and without him the average increase would be almost 30%. Cynics will say, okay but the market fell 14.3% last year – to which I would retort that it rose 80% in 2009.

I also like the rhetoric from JPMorgan Asset Management. “When noise is at its highest we’d want to invest on those days, those lousy Friday sell-offs. We’ll wait for that day when rumours go around about CPI reaching 6.5% and we’ll go buy that day. That’s how we operate on a conceptual basis - buy when there’s bad news on inflation”. Chinese stocks “look extremely cheap”.

JPMAM also likes property developers and points out that their shares on the Shanghai Composite trade at an average 13.0x estimated earnings, compared with 16.4x on the Hang Seng Property Index and 21.5x for companies on the MSCI World/Real Estate Index. “There are always big opportunities in China’s property space. Overseas investors love buying Chinese properties. They always look for excuses to buy”.

There has been good macro news today, too, with Soufun saying that real estate prices in Beijing rose 37.1 % and 13.4 % in Shanghai in 2010 from a year earlier. Similarly, JLL predicts that home prices will rise 5 to 7% in 2011. It also says that while the Government is expected to introduce a property tax in Shanghai this year, the impact will be minimal because the levy is expected to be low. This meant that the sub-index of property stocks rose 2.4% in today’s trading, which was the second best among the Shanghai Composite’s five industry groups. What’s more the measure has also jumped 8.8% this year which is the best among the five industry groups (and, yes, it was off 28% in 2010 and the worst performing industry).

Large scale developers are also liked by the investment bank boutique Jefferies – and to back up its view the research team has visited 300 property projects in China over the past year. “We expect policy to remain tight and prefer developers going for scale, like Wal-Mart. The tightening policies are focusing on curbing excessively high prices, not high volume. Actually, the Government encourages homeownership”. Nor does Jefferies expect a lot more tightening measures targeting the property market because overall inflation remains the Government’s top concern. The increase in property prices may be capped at 5% in 2011, Jefferies added, with housing transactions expected to increase 5 to 10 %. But the bigger developers may post volume gains exceeding 20% because of a lack of supply of homes in the Nation, where buyers wait as long as two years for their properties to be built. “We definitely haven’t seen that big bubble that some other people may be concerned about”.

In other news, President Hu Jintao has confirmed that he will visit the US from 18 through 21 January, which will follow what will most likely be a $20 billion+ trade surplus for December (data are out next week). This would be the sixth time in seven months clear of the £20 billion mark and it would take the full year tally to $191 billion. Surprisingly, perhaps, the Yuan fell for a third day, declining 0.11% to 6.6265; similarly Non-deliverable Forwards currently point to appreciation of just 2.7 % over the next year.

“I had heard my father say that he never knew a piece of land run away or break” - John Adams

Shanghai Composite:
Today: +0.52% to 2,838.80 at close
This week: +1.1%
December: -0.4%
2010: -14.3%
Since 5 July: +20.1%
YTD: +1.1%

Hang Seng:
Today: +0.41% to 23,686.63 at close
This week: +2.8%
December: +0.1%
2010: +5.3%
Since 25 May: +24.8%
YTD: +2.8%

Oil futures: $94.16
Gold futures: $1366.90
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.2988

EQUITIES

• Average increase in the value of Chinese equities this year is forecast at +27% by investment banks and brokers
• Stocks to rally in China, says JPMorgan Asset Management

REAL ESTATE

• Property boom
• Large scale developers favoured by Jefferies

ECONOMY

• Inflation rate for December 4.5 to 4.8% based on consensus
• GDP growth in 2011 at 9% says consensus

MONEY

• Longer term debt is cheaper than short term as market believe China will control inflation
• Commercial paper sales forecast to rise 20% as loan availability shrinks
• World Bank unit sells Yuan bonds for the first time

DOMESTIC

• Yuan 11.1 trillion to be spent on power plants alone
• Anti-price fixing measures to take effect on 1 February
• Walt Disney park to commence building in May
• Beijing-Shanghai high speed rail link to run from June

IRON & STEEL

• Australian floods may lead to a reduction in steel output in China, say Deutsche
• Hebei Steel agrees to investment in private mills
• Laiwu Steel shareholders turn down Jinan Iron & Steel bid