By Bloomberg News - Dec 12, 2011 10:35 AM GMT+0800
Article from Bloomberg
he value of shares traded on Shanghai’s stock market (SHCOMP) slumped to the lowest in three years on Dec. 9, representing a bullish signal for China Merchants Securities Co. and Central China Securities Co.
Shares worth 38.9 billion yuan ($6.11 billion) changed hands on the Shanghai Stock Exchange, the lowest value since Dec. 31, 2008, according to data compiled by Bloomberg. When the daily trading value fell to that low on Dec. 31, 2008, the Shanghai Composite Index surged 91 percent in the following seven months, spurred by a 4 trillion-yuan government stimulus package of building roads, bridges and airports.
Chinese equities have dropped for the past two years as the central bank raised borrowing costs to tame inflation that’s above the government’s target and Europe’s debt crisis boosted concerns shipments to China’s biggest export market will slump.
“Low trading volume is one signal,” said Chen Wenzhao, a strategist at China Merchants Securities in Shanghai, an affiliate of China’s fifth-biggest bank. “More importantly, we’ve seen a reversal of monetary policies and liquidity will become better and better.”
China’s stocks may rebound in the first quarter next year as the government loosens monetary policies to boost economic growth, which help increase stock valuations, Chen said. The Shanghai Composite’s 18 percent slump this year, following a 14 percent drop in 2010, has pushed down its estimated price earnings to 11 times, compared with a six-year average of 18.3 times, according to weekly data compiled by Bloomberg.
Slowing Growth
China’s exports rose 13.8 percent in November from a year earlier, the customs bureau said over the weekend. Excluding distortions in January and February each year, that was the least since export growth resumed in December 2009. Industrial output climbed 12.4 percent last month, the slowest pace since August 2009, according to statistics bureau data on Dec. 9.
Nomura Holdings Inc. last week cut its estimate for China’s economic growth next year to 7.9 percent from 8.6 percent, citing slowing investment in private housing and weakening external demand. The economy expanded 9.1 percent in the third quarter, easing from a 9.5 percent growth rate a quarter earlier.
“Technically speaking, trading values come ahead of index prices,” said Li Jun, a strategist at Central China Securities in Shanghai. “When values are at a low, that means stocks are going to hit a bottom soon. We are now in a situation where the stock market is definitely approaching its bottom.”
The daily average turnover in 2011 has fallen 24 percent from the average level over the past two years, Bloomberg data showed. The Shanghai Composite retreated 0.3 percent to 2,309.58 at 10:16 a.m., heading for the lowest closing level this year.
Short-Term Buy
Low trade values may signal only a short-term buying opportunity, said Luo Bin, who manages the equivalent of $60 million as general manager at Shanghai Mingyu Xiaoyang Investment Management Co.
“It remains unknown how slow economic growth will be next year and how the European debt problem will be resolved,” Luo said.
A smaller trade surplus and signs that capital has started to flow out of the country may encourage the ruling Communist Party to add to a Nov. 30 cut in bank reserve requirements that was the first since 2008. The Shanghai index may rise to as high as 2,800 next year as commercial banks will be allowed to lend more to bolster economic growth, Li said.
“Stocks are already around the bottom now,” said China Merchants’ Chen.
--Zhang Shidong. Editors: Allen Wan, Matthew Oakley
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
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