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| Stock investors will be keeping a close watch on the latest economic data as well as any moves by the Chinese government to extend its monetary easing policy. (Provided To China Daily) |
Data released this week on inflation and trade will be heavily scrutinized.
Investors will be hoping for increased stimulus measures backed up by a bold reform agenda from Beijing policy-makers as China continues to face strong economic headwinds next year.
Monthly economic data on inflation, trade and foreign exchange reserves will be released this week.
Already economists are predicting that the government could roll out more monetary easing and step up reform plans if the economic situation shows signs of deteriorating.
Weakening growth momentum and rising deflationary pressure could prompt action, they point out.
Chang Jian, China economist at Barclays Plc, believes the People's Bank of China, or centralbank, may cut the benchmark interest rates by another 25 basis points in December.
"We believe the positive developments in consumption growth and the services sector are notstrong enough to fully offset the broad weakening in growth momentum," Chang said.
Economists at investment bank Goldman Sachs are forecasting similar measures.
They are predicting that the Chinese monetary authority will cut the amount of cash banksneed to set aside in reserves by 300 basis points and reduce benchmark interest rates by 50basis points next year.
Market expectations for more monetary easing surfaced after recent economic data showedthat industrial profit figures declined by 4.6 percent in October compared to the same periodlast year.
Manufacturing activity dropped to its weakest level in more than three months, while external trade also fell.
Even the domestic property sector, which used to be a key GDP driver, continues to struggle amid slower home sales and stagnating prices.
For market investors, the challenge will be to cherry pick the right stocks that will benefit from greater economic reform and monetary easing.
Ning Jing, portfolio manager of China-focused funds at global asset management firm FidelityInternational, still feels there are ample opportunities in the so-called "old economy" withcertain businesses undervalued.
"Companies in infrastructure, heavy machinery and property sectors are likely to benefit fromChina's sustained reform agenda next year," she said.
Last week, speculation about government policies to boost home sales and loosen mortgagerestrictions led to strong rallies in A-share market property stocks.
At the same time, Premier Li Keqiang has vowed to further open up China's capital marketand to deepen financial reforms following the inclusion of the Chinese yuan into the SpecialDrawing Rights currency basket of the International Monetary Fund.
A-share listed financial companies, including banks and securities brokerages, will alsobenefit from China's plan to step up integration of its financial sector with the rest of the world, according to analysts.
Foreign institutional investors will closely follow whether the government reforms will prove tobe effective in unwinding the excess industrial capacity in the economy, which could bepainful but necessary for a strong economic recovery in China, Ning at Fidelity said.
Moderate consumer inflation, analysts believe, could also offer greater leverage forpolicymakers to stimulate the economy. But some noted that the valuation of the yuan couldcomplicate issues for investors.
"China's economy could see the yuan weaken in the coming year, yet a large-scaledevaluation isn't likely as the government promotes the currency's global use," Banny Lam,co-head of research at Agricultural Bank of China International Securities Ltd in Hong Kong,told Bloomberg.
Goldman Sachs' strategists hold a similar view.
"Politically, a large depreciation would be awkward when the SDR decision is still fresh in themind and China looks forward to hosting the next G20 summit in early September 2016," theytold Bloomberg.
