BT: China-stock analysts at their most bullish in 10 years (27 Jun 2007)

China-stock analysts at their most bullish in 10 years

Total buy calls hit 67.4% of all ratings despite govt moves to cool sentiment

(SHANGHAI) Zhang Shibao covers 12 Chinese stocks and recommends investors buy all of them, even after they have more than tripled on average over the past year.

'We are still in the middle of the bull market and the uptrend is irreversible,' said Mr Zhang, a steel analyst at China Merchants Securities Co in Shenzhen.

Analysts who cover Chinese companies, such as Mr Zhang, are the most bullish they have been at any time in the past 10 years. Total buy calls on mainland shares from local and foreign analysts rose to 67.4 per cent of all ratings this month, the highest since Bloomberg began collating the data a decade ago. The bullishness comes as the government is trying to cool a rally that has made shares there the most expensive in Asia.

Mr Zhang has eight 'strong buy' and four 'buy' recommendations on the 12 iron and steel stocks he covers. They have gained an average of 218 per cent over the past 12 months and are up 97 per cent this year.

Shares of Shanxi Tiagang Stainless Steel Co, China's biggest maker of the corrosion-resistant metal, have leapt 355 per cent over the past 12 months, while Wuhan Iron & Steel Co, the nation's third-biggest steelmaker by market value, have almost quadrupled. Nine of 10 analysts who cover Shanxi Tiagang rate it a buy, while 10 of 18 recommend buying Wuhan Iron & Steel. Mr Zhang has 'strong buy' ratings on both stocks.

Sell calls make up 10.3 per cent of all ratings, the lowest proportion on record, and hold ratings comprise 22.2 per cent of the 12,301 recommendations on Chinese stocks tracked by Bloomberg.

That is even after the government on May 30 tripled a tax on securities trading and the central bank twice raised interest rates this year in failed bids to cool the rally.

China's stock brokers have never had it so good. Individual Chinese investors are opening brokerage accounts at the rate of about 300,000 a day this quarter, helping the CSI 300 Index almost double in 2007, the second biggest gain among 90 benchmarks, behind Ukraine's PFTS Index. The index is valued at 43 times reported earnings, about twice as much as Japan and India, Asia's next most expensive markets.

Ping Jingwei, an analyst at Shanghai Securities Co, has buy recommendations on all seven stocks he covers, betting the inflow of new investors into the market will trump the government's efforts to cool it.

'Many of the stocks are above fair value in my opinion, but I don't put out a sell call because the market is now being carried along by momentum and liquidity,' he said. 'I may think it's worth US$10 but if it's now US$15 and looks set to rise further, why would I put out a sell call? What if it keeps gaining? I'd look bad and it wouldn't look good on my appraisal.'

Investor Marc Faber has warned of a 'bubble' in Chinese shares. Last month, People's Bank of China governor Zhou Xiaochuan, former US Federal Reserve chairman Alan Greenspan and Li Ka-shing, Asia's richest man, all made the same call.

'It is common for analysts to be most bullish near market peaks,' said Mr Faber, who oversees US$300 million in assets at Marc Faber Ltd in Hong Kong. 'It is very difficult to contain bubbles with monetary measures only.' - Bloom-

berg


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