Chinese stocks will recover from their steepest drop since November and end the year higher as speculation that the government will limit bank loans is unfounded, billionaire investor Kenneth Fisher said.
The nation’s economy is “gangbusters compared to the rest of the world, why would they try to kick that?” said Fisher, who has about $900 million invested in Chinese shares among the $28 billion he manages as chief executive officer of Fisher Investments Inc. in Woodside, California. “They have zero incentive” to curb lending, he said.
Chinese equities plunged yesterday amid speculation the government will curb inflows into a market that had more than doubled from last year’s low. Beijing-based Caijing magazine reported on its Web site that the central bank may order lenders to set aside larger reserves. Market News International said investors are concerned regulators will increase a tax on stock trading.
The Shanghai Composite Index of mainland-traded shares fell 5 percent yesterday, the most since November, and the Hang Seng China Enterprises Index of Hong Kong-traded stocks lost 3.5 percent. The Bank of New York Mellon China ADR Index declined 3.3 percent to 368.22. The Shanghai measure rose 0.9 percent to 3,296.43 as of 9:49 a.m. local time.
The Shanghai index is up 81 percent this year, the world’s second-best performer after Peru among 89 equity benchmark measures tracked by Bloomberg. Stocks surged after the government unveiled a 4 trillion yuan ($586 billion) stimulus package in November and dropped lending restrictions to cushion the economy from a record slump in exports.
Loans worth an estimated 1.16 trillion yuan were invested in the stock market in the first five months of this year, China Business News reported June 29, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.
“There are just concerns that bank lending has been so strong and so much liquidity has been created that it’s going to slow down, and the Chinese market has been a powerhouse,” Barton Biggs, who runs New York-based hedge fund Traxis Partners LP, said in an interview with Bloomberg radio. “It’s a very speculative investment environment and so you get a big correction today.”
China’s central bank said yesterday it will maintain a “moderately loose monetary policy” and aims to consolidate the nation’s economic recovery.
“To continue to foster the relatively smooth and fast economic development is the top priority,” the People’s Bank of China said in a statement on its Web site that cited recent remarks by Su Ning, a deputy governor, in Shanghai.
China doesn’t need to restrict lending because inflation is under control, Fisher said in a telephone interview. Consumer prices fell 1.7 percent in June from a year earlier, the fifth monthly decline and the biggest drop since 1999, the government said this month. The nation’s gross domestic product grew 7.9 percent in the second quarter, becoming the first of the major economies to rebound from the global recession.
Stocks on the Shanghai index trade at 35.3 times reported earnings, the highest since January 2008 and more than twice the average of emerging markets, according to data compiled by Bloomberg. The Shanghai index, which doubled in 2006 and 2007, slumped 65 percent last year.
“What will happen is that the government will probably pull back lending a little bit to prevent a real bubble from forming,” Mark Mobius, executive chairman of Templeton Asset Management Ltd., told reporters yesterday in the southern Russian city of Volgograd.
Individual investors have rushed to buy equities as regulators lifted a nine-month moratorium on IPO share sales in June. More than 1 million stock accounts were opened in the two weeks to July 24, data from the nation’s clearing house showed, the most since January 2008.
“I think there’s some concern that some of the bank loans have flown into the stock market to trade stocks, which caused the asset bubble,” said Ming Zhao, an analyst at Susquehanna Financial Group.