30-Dec-2011 - Chinese Policymakers Face Difficult Economy In 2012

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Instead of an inflation scare, China is now facing a growth scare. Equity strategist Francis Cheung of investment brokerage CLSA believes China may have over-tightened on its economy this year due to the lag effect of monetary policy. “The first half of the year will be difficult, with global risk and a slowing economy, but money growth will accelerate, which could lead to out-performance,” Cheung wrote in a recent report. “Historically, M1 and M2 growth are leading indicators of market performance.” China’s money supply as measured by M2, a broad measure of cash in circulation that includes all deposits, increased 12.7% in November, while growth in M1, which only covers cash and demand deposits, rose 7.8%. jerseys cheap Cheung warned that such low levels of growth are likely to cause an economic contraction, and recent data should be seen as a warning sign. Weakness in exports is showing signs of spreading into the rest of the domestic economy as both the official and HSBC purchasing manager’s indices (PMI), gauges of the country’s manufacturing activity, fell into negative territory in November for the first time since early 2009. Beijing’s unexpected move to cut the reserve requirement ratio (RRR) for banks before its economic work conference in mid-December was a key turning point that sets the tone for 2012. Cheung expects another reserve requirement cut in the first quarter next year, with a further triple-R or interest rate cut in the second half. These expected measures shouldn’t kids nfl jerseys be misinterpreted as a dramatic change in policy, though. China is still facing a tight monetary environment next year after the central bank raised reserve requirements 12 times and interest rates four times since the beginning of 2009. Cheung said those tightening measures have yet to be fully realized. CLSA conducted an online survey of NHL jerseys 500 consumers and found respondents were surprisingly optimistic about the economy and plan to spend more on travel, computers and smartphones. Cheung recommends sectors that have the government’s policy support or a domestic focus. His top picks are Baidu, Sands China, Longyuan Power, ZTE and China Mobile. “The Internet is probably the best place to be in China. There are some regulatory issues that are probably over estimated, but I think the best is yet to come for the Internet sector,” Cheung said.

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