Strong domestic consumption is expected to
boost the Chinese stock market the rest of this
year, with shares of listed companies that produce
and sell consumer goods likely to be favored by
investors and speculators, analysts say.
This is despite the worry that the market
may soon take a downturn because it has reached a
quite-high level and Beijing is expected to
strengthen its macroeconomic controls to cool down
the
overheating economy.
Chinese share prices
hit a new high on Monday despite the fifth
interest-rate hike this year announced last
Friday. The benchmark Shanghai Composite Index
rose 109.21 points, or 2.06%, to 5,421.39. The
Shenzhen Component Index was up 280.67 points, or
1.54%, to 18,494.38.
At this level, many
securities analysts and investors begin to
consider consumption-related shares as ideal buys
as official statistics suggest strong growth in
the consumer market.
The latest data
released by the National Bureau of Statistics
(NBS) showed that retail sales soared to a new
three-year high, with consumer goods reaching 5.62
trillion yuan (US$725 billion) in the first eight
months of this year, an increase of 15.7% year on
year.
Analysts also expect an even higher
increase in consumption during the rest of this
year. Consumption, investment and exports are
figuratively described as the "troika" hauling
China's economic growth. Affected by Beijing's
macroeconomic control and adjustment policy, the
growth of fixed-asset investment is slowing down.
The pressure on the appreciation and reduction of
export-tax rebates would also be expected to curb
export growth.
Hence growing domestic
consumption is expected to become a stronger
motive force for a vigorously growing economy. The
rest of this year, dotted with holidays and
festivals, will see a flourishing domestic
consumer market, strongly supported by a large
population and the growth of the country's gross
domestic product (GDP).
Growth in
consumption boosts profits of listed companies
engaging in production and sales of consumer
goods. This will, in turn, boost the prices of
such shares, analysts say. In fact, some "early
birds" quietly began to buy such shares even
before the release of NBS statistics. And among
all the consumption-related shares, prices of
stocks in the food, beverage, automobile and
jewelry industries are widely expected to have
strong and steady gains in the months to come.
Many securities companies expect excellent
performance of stocks of listed companies in food
and beverage sectors as most of such companies'
interim financial reports registered a strong and
steady growth. The 47 listed food and drink
companies reported total revenue of 62 billion
yuan in their core businesses in the first half of
2007, an increase of 19.2% year on year, while
their net profits have reached 4.47 billion yuan,
a growth of 33.19%.
Analysts with TX
Investment Consulting said that as the Shanghai
Composite Index surpasses the 5,400 mark, the risk
of a market bubble grows. Hence stocks of leading
companies in the food-and-beverage industry are a
reasonable choice to avoid market risk.
Expected inflation would be in favor of
the share prices of food and beverage companies.
Food and beverages are a necessity of daily
consumption, hence price hikes simply boost the
related companies' profits.
The sharp rise
in food prices, mainly fueled by rising pork
prices, which soared 77.6% in August from the same
month a year ago, pushed up the annual growth rate
in the Consumer Price Index (CPI), China's key
inflation indicator, to 6.5% last month, the
highest in 11 years.
The retail volume of
food and beverages in the first eight months was
up 25% year on year. With many traditional Chinese
festivals to celebrate, the remainder of this year
is usually a booming season for sales of meat,
alcohol and drinks. The expectation of price hikes
will also incite the share price of the food
industry, said analysts with United Securities
based in Shenzhen.
As motor vehicles have
now become popular consumer goods, automobile
stocks are also becoming a good investment. August
saw a 42.3% increase in automobile sales compared
with the same month of last year. "The automobile
market is booming this year," said a report by
Beijing-based Galaxy Securities.
Statistics from the China Association of
Automobile Industry indicated 5.7 million
automobiles were sold in the country in the first
eight months, while insiders expect sales for the
whole of this year could reach 8.5 million units.
The 22 automobile companies listed on the
Shanghai and Shenzhen stock exchanges have
reported a collected half-year revenue of 141.5
billion yuan, up 114% year on year, and their net
profits of 6.2 billion yuan, a 188% increase from
a year ago.
As the consumption of gold in
China and India affects the price of the world
gold market to a certain extent, Chinese
enthusiasm in buying gold and jewelry during the
the "golden week" holidays surrounding the October
1 National Day and later the Lunar Chinese New
Year should also drive up gold-related stocks.
"The rise of CPI and worry over inflation
make people buy more value-saving commodities such
as gold and jewelry, which would push the related
stocks to higher prices," said analysts with
United Securities. Sales of gold and jewelry in
August increased 53.3% over the same period last
year.
In the meantime, shares of Shandong
Gold closed at 184.39 yuan on Monday, six times
the price in January, and Zhongjin Gold closed at
147.85 yuan, seven times the price in January.
Stocks of gold ornaments also had a strong
performance.
As the strong growth in the
sales of consumer goods are reflected in the
Chinese stock market, investors should take the
opportunity to boost the hot market to an even
higher level, despite Beijing's belt-tightening
measures.
Sally Wang is a
freelance writer based in mainland China.
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