Morningstar
RecommendedMIC UK 2024 Whats New IconMorningstar AwardsWhats New IconETFs Whats New IconSign Up to Our Newsletters Open Window Icon
Market Update

China Moves to Restore Confidence in Economy

Government continues shifting focus to growth stimulation.

Dan Su, CFA 22 September, 2008 | 9:53AM
Facebook Twitter LinkedIn
Font-Size
It was an eventful week for the Chinese economy, starting with a rare move from the central bank to cut the benchmark one-year lending rate and the bank reserve ratio at the same time. The lending rate was lowered by 27 basis points to 7.2%, the first rate cut in six years. The ratio of bank reserve (the amount of cash that banks are required to hold), came down by 100 basis points to 16.5%. We think both moves are aimed at loosening monetary supply and increasing liquidity to the market, as the government is shifting its focus to growth stimulation. However, the lower reserve ratio does not apply to China's five largest commercial banks, Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, and China Agricultural Bank, indicating that inf

lation concerns remain.

On Friday, China further announced plans to buy back shares in Bank of China, Industrial and Commercial Bank of China, and China Construction Bank, and announced a decision to remove tax on stock purchases. Now only sellers of stocks need to pay the 0.1% stamp tax. We think these moves should help shore up investor confidence and attract more participants in the market.

Market Recap
 Chinese investors were taken on a roller-coaster in the past week. The stock market fell for three consecutive days (a nearly 9% drop), rattled by the upheavals in the U.S. financial industry as well as by concerns of lower income for China's commercial banks after the rate cut. After a relatively quiet Thursday, however, the stock market rallied 9.5% on news of bank share buybacks and the removal of the stamp tax on stock purchases.

For the whole week, the Shanghai Composite Index was roughly flat at 2075, although it touched the low point of 1802 mid-week. The Shenzhen stock market rose by 3.1% to 7154. Trading volume soared on Friday after the stamp tax announcement.

Financials
 The Bank of China has agreed to buy 20% of French bank La Compagnie Financiere Edmond de Rothschild. The deal is valued at around 240 million euros and makes BoC the second-largest shareholder of LCFR. This is the first strategic investment of a leading Chinese bank in a Eurozone bank. The two banks expect to cooperate in areas of private banking and asset management.

Industrial
 China's homemade regional aircraft is ready for trial flight. The ARJ 21-700, the first regional aircraft independently developed by China, is scheduled for test flight in late September. The plane has 80-90 seats and can cover the distance for 98% of the domestic direct flight routes.

Technology
 Shareholders have approved China Unicom's CDMA disposal plan and merger with China Netcom. As a result of China's massive telecom industry overhaul announced earlier this year, the new China Unicom will officially start operation on Oct. 15, 2008. The new company will provide both wireless GSM and fixed-line services.

Thanks for contributions from Lun Lu, Iris Tan, Peter Liu and Feliz Li

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn
Font-Size

About Author

Dan Su, CFA  Dan Su, CFA, is a senior stock analyst with Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures

The Morningstar Star Rating for Stocks is assigned based on an analyst's estimate of a stocks fair value. It is projection/opinion and not a statement of fact. Morningstar assigns star ratings based on an analyst’s estimate of a stock's fair value. Four components drive the Star Rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s fair value, (3) our uncertainty around that fair value estimate and (4) the current market price. This process culminates in a single-point star rating that is updated daily. A 5-star represents a belief that the stock is a good value at its current price; a 1-star stock isn't. If our base-case assumptions are true the market price will converge on our fair value estimate over time, generally within three years. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Morningstar Star Rating for Stocks, please visit here

Quantitative Fair Value Estimate represents Morningstar’s estimate of the per share dollar amount that a company’s equity is worth today. The Quantitative Fair Value Estimate is based on a statistical model derived from the Fair Value Estimate Morningstar’s equity analysts assign to companies which includes a financial forecast of the company. The Quantitative Fair Value Estimate is calculated daily. It is a projection/opinion and not a statement of fact. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Quantiative Fair Value Estimate, please visit here

The Morningstar Medalist Rating is the summary expression of Morningstar’s forward-looking analysis of investment strategies as offered via specific vehicles using a rating scale of Gold, Silver, Bronze, Neutral, and Negative. The Medalist Ratings indicate which investments Morningstar believes are likely to outperform a relevant index or peer group average on a risk-adjusted basis over time. Investment products are evaluated on three key pillars (People, Parent, and Process) which, when coupled with a fee assessment, forms the basis for Morningstar’s conviction in those products’ investment merits and determines the Medalist Rating they’re assigned. Pillar ratings take the form of Low, Below Average, Average, Above Average, and High. Pillars may be evaluated via an analyst’s qualitative assessment (either directly to a vehicle the analyst covers or indirectly when the pillar ratings of a covered vehicle are mapped to a related uncovered vehicle) or using algorithmic techniques. Vehicles are sorted by their expected performance into rating groups defined by their Morningstar Category and their active or passive status. When analysts directly cover a vehicle, they assign the three pillar ratings based on their qualitative assessment, subject to the oversight of the Analyst Rating Committee, and monitor and reevaluate them at least every 14 months. When the vehicles are covered either indirectly by analysts or by algorithm, the ratings are assigned monthly. For more detailed information about these ratings, including their methodology, please go to here

The Morningstar Medalist Ratings are not statements of fact, nor are they credit or risk ratings. The Morningstar Medalist Rating (i) should not be used as the sole basis in evaluating an investment product, (ii) involves unknown risks and uncertainties which may cause expectations not to occur or to differ significantly from what was expected, (iii) are not guaranteed to be based on complete or accurate assumptions or models when determined algorithmically, (iv) involve the risk that the return target will not be met due to such things as unforeseen changes in changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, tax rates, exchange rate changes, and/or changes in political and social conditions, and (v) should not be considered an offer or solicitation to buy or sell the investment product. A change in the fundamental factors underlying the Morningstar Medalist Rating can mean that the rating is subsequently no longer accurate.

For information on the historical Morningstar Medalist Rating for any managed investment Morningstar covers, please contact your local Morningstar office.

For more detailed information about conflicts of interest, including EU MAR disclosures, please see the “Morningstar Medalist Rating Analyst Conflict of Interest & Other Disclosures for EMEA”here

Select Your Site Edition To make sure the site is relevant to you, we need to know if you’re an individual investor or a financial professional.