Japan, Australia, if not China?

May 17, 2011

By George Chen
The opinions expressed are the author’s own.

I am hearing more complaints these days from trader friends about how boring the market is these days. Why boring?

Trading volume is low and there are apparently more risks than opportunities as investors seek clear signals about the central bank’s monetary policy direction and about what global funds think of China for the second half of the year.

With investors uncertain about the outlook for the Shanghai and Hong Kong stock markets, some are beginning to rethink their positions on Japan. Concerns about radiation are easing and I hear more people talking about the big potential for Japan’s market and economy to rebound amid massive reconstruction there. An old and new question then arises: can we bet on the Nikkei, again?

Australia also looks like a good bet to some rich Chinese investors. They say the property market alongside the long beaches in Australia offers profit-taking opportunities over the next few years.

Remember my recent column about many rich Chinese trying to emigrate in the next few years? Australia is always a popular destination. A number of local media reports also indicated some family members of top Chinese leaders already bought nice villas in the resource-rich country whose diplomatic relations with China have been up and down in recent years.

In China, an influential fund manager friend told me privately: “The property market in China is basically done this year and next year before Premier Wen Jiabao retires and we get a new government.” But he quickly added: “Premier Wen must do something to keep his promise to keep property prices under control, and he’s done almost all he can. The next government will be a different story.”

So, until we see clear signs of how much further China’s property market can go, some investors are naturally starting to shift their focus. Japan? Australia? What’s your say? I think the same logic can apply to China’s stock market amid record high banks’ reserve requirement ratio, now already 21 percent for most banks, and the country’s benchmark interest rate that Beijing keeps raising so far this year.

The fast-changing market sentiment about investors shifting focus in Asia may be a bad sign or even a sort of warning to the Chinese government, which is keen to fight asset bubbles but also doesn’t want to see huge foreign money outflows and a lack of confidence in its capital markets.

The Shanghai exchange remains keen to launch an international board to welcome HSBC “home”. If the main board of its local currency yuan-denominated A-shares sinks, how can you convince investors of the value of the new international board?

Li Daokui, an influential adviser to the People’s Bank of China, said yesterday that the valuation levels of most A-share companies were pretty low and he saw investment opportunities. To some investors, this is almost government propaganda to encourage buying.

However, he also warned that Beijing needs to raise interest rates further to rein in inflation and that’s not really good news for stock investors.

Remember what Warren Buffett said? Choose right and sit tight. However, Mr. Buffett may also be feeling a bit lost about his Chinese investment portfolio these days. Oh yes, that’s just another China story …

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A woman carrying an umbrella walks past an office building that includes a China Telecom office and a branch of the Industrial and Commercial Bank of China in central Beijing August 25, 2010 REUTERS/David Gray

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