China’s World-Beating Stocks Keep BlackRock Bullish on Economy

Feb. 2 (Bloomberg) -- The world’s largest money managers say China’s steepest monthly stock gain in more than a year shows the fastest-growing major economy will avert a recession.

The Shanghai Composite Index, the broadest measure of shares traded on the mainland, opens after a weeklong celebration of the Lunar New Year and a 9.3 percent gain in January, the best among the world’s 10 biggest markets. Last year, the index fell 65 percent, the worst since at least 1996, according to data compiled by Bloomberg.

Chinese shares rebounded after the central bank lowered interest rates five times since September and the government announced a $585 billion stimulus plan. China’s economy is expected to grow near 8 percent this year even after expanding 6.8 percent in the fourth quarter, the slowest pace since December 2001, according to fund managers Richard Urwin at BlackRock Inc. and Barclays Plc’s Russ Koesterich, who together help manage more than $3 trillion in assets.

“China is going to do what it has to do to keep the economy humming,” Koesterich, the San Francisco-based head of investment strategy at Barclays Global Investors, said in a Bloomberg Television interview Jan. 26. “They can enjoy faster growth than the rest of the world in 2009 and in 2010 as well.”

The Shanghai Composite of 895 stocks fell 0.7 percent to 1990.66 when it last traded on Jan. 23. That pared its third straight weekly gain to 1.9 percent.

China Stimulus

China pressured state-owned banks to increase lending, unveiled the 4 trillion yuan stimulus package, reduced export taxes and agreed to provide support for 10 industries, through tax cuts and subsidies for steel and autos.

The central bank dropped quotas limiting annual lending by banks in the fourth quarter. The government has also urged banks, most of which are state-owned, to lend more to small and medium-sized companies. Money supply and lending surged in December, according to the statistics bureau.

“The Chinese have a pretty strong pro-growth agenda at the moment and they tend to do whatever it takes to stabilize the growth slowdown,” said Urwin, the head of asset allocation at BlackRock in London.

Stephen Roach, chairman of Morgan Stanley Asia Ltd., said it’s a “myth” that China will lead the world out of a recession, especially as the U.S., China’s biggest export market after the European Union, imports less.

‘Going South’

“Most of the juice in the Chinese growth results in the last five or six years have been export-led,” Roach said in a Bloomberg Television interview from Zurich. “How can an export- led economy lead the world out if its export markets are going south?”

The U.S. economy shrank the most since 1982 in the fourth quarter as consumer spending slid. U.S. Treasury Secretary Timothy Geithner said on Jan. 22 that President Barack Obama believes China is “manipulating its currency,” suggesting that the new administration may take a tougher line on China’s exchange-rate regime.

Geithner also said last month that China should focus on “more aggressive” efforts to boost its own economic growth, in concert with the coming U.S. stimulus package. The U.S. House of Representatives on Jan. 29 passed Obama’s $819 billion stimulus plan, aimed at lifting the economy out of recession through tax cuts and new spending.

China’s gross domestic product will expand 6.3 percent this quarter from a year earlier, the median estimate of nine economists surveyed by Bloomberg News showed.

Difficult Year

Chinese Premier Wen Jiabao said on Jan. 28 it will be a “tall order” meeting the nation’s 8 percent growth target. New York University Professor Nouriel Roubini predicts economic growth in China will slow to less than 5 percent.

“This year will be a difficult one for stocks,” said Howard Wang, who oversees $10 billion at JF Asset Management Ltd. in Hong Kong. Government stimulus measures are unlikely to offset a contraction in private real estate investment and capital investment for exporters, Wang said.

Demand for property has sagged in China, with home prices across 70 cities dropping for the first time on record in December.

Chinese stocks are trading at less than one-third of their peak valuations in January 2008. Before the Lunar New Year holiday break, the Shanghai Composite Index was valued at 15.5 times reported earnings, down from a six-year high of 50 times a year ago. That’s still the highest among benchmark indexes in Asia.

Easing Restrictions

Beijing North Star Co., a real estate arm of the municipal government, is among China stocks traded in Hong Kong that gained last week while the mainland market was closed.

The official Xinhua News Agency reported on Jan. 24 that Beijing removed restrictions on the purchase of real estate by foreigners in an effort to create more demand. The city has also eased financing for some buyers and granted developers a delay in payment, UBS AG said in a Jan. 30 report.

Beijing North Star climbed 8.1 percent in Hong Kong trading last week. The Shanghai-traded stock has gained 8.5 percent this year after tumbling 80 percent in 2008.

China Vanke Co., the nation’s largest publicly traded developer and not listed in Hong Kong, has risen 9.2 percent in Shenzhen. It dropped 64 percent last year.

Industrial & Commercial Bank of China Ltd., China’s largest lender, rose 3.4 percent in Hong Kong trading last week, while the so-called H shares of China Construction Bank, the second- biggest, rose 4.3 percent. The shares have gained 3.4 percent and 4.4 percent respectively in Shanghai trading this year.

“China is still a market we continue to be overweight in because it has the best potential for effective policy stimulus,” said Mark Tan, who helps oversee about $3 billion in Asian equities at UOB Asset Management Ltd., a unit of Singapore’s second-largest bank.