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Chinese Inflation May Have Peaked but Stocks Remain Challenged by U.S. Worry

The ongoing Chinese government measures designed to curb inflation and minimize property-price gains are nearing their peak according to a JP Morgan asset manager. The discontinuation of the

The ongoing Chinese government measures designed to curb inflation and minimize property-price gains are nearing their peak according to a JP Morgan asset manager. The discontinuation of the measures is expected to be a boon for stocks in the nation, bolstering outlooks and assuring investors that some stability has been gained as a result of their implementation.

In a Bloomberg piece, Howard Wang, the Hong Kong-based head of the Greater China team at the JPMorgan unit called the measured “highly effective” and expressed his view that after significant progress against inflation, the environment for Chinese equities has improved. The news will perhaps reverse the negative progress of The Hang Seng China Enterprises Index tracking Chinese stocks traded in Hong Kong this year. The index has declined 3.1 percent this in 2011, at a faster rate than the 1.9 percent drop in the MSCI Emerging markets index for the year. Chinese stocks tightened alongside the central bank’s decision to boost interest rates five times and lenders’ reserve requirement ratio 12 times since the start of 2010.


The expectation that inflation may be at its peak led to more optimism surrounding property and construction related shares in morning trading. Steel has been especially buoyant in recent trading, overcoming suspicion that the amount of steel in China is being underreported. Chinese stocks in the industry were higher today with Ossen Innovation (OSN), China Gerui Advanced Materials Group (CHOP) and General Steel Holdings (GSI) all pushed marginally higher in trading today. Construction shares of the year have been weak as a result of the tightening so the positive news regarding inflation bodes well for the discounted construction stocks. Over the course of 2011, China Construction Bank’s Hong Kong-traded shares have declined by 13 percent. In the Bloomberg article, Wang says “things will only get better from here.”


Aside from steel, Chinese technology companies pushed higher today. High Power International Inc. (HPJ) appeared to begin a rally, though it remains over 60 percent beneath 52-week highs. Elsewhere in technology, Advanced Battery Technology (ABT) continued its rally, up well over 20 percent for the week. Volume for the stock has been up since the company reported revenue of $28.4 million for the three months that ended March 31, 2011, an increase of $9.09  million or 46.5 percent from the previous year.

Not all stocks benefitted from the notion that Chinese inflation could be coming to an end. There are many who continue to speculate that inflation remains far beyond acceptable means or held down by the decision of the Chinese cabinet to expand measure to rein in residential prices to small cities and limiting home purchases in booming cities like Beijing and Shanghai. It could be presumed this is the reason behinds today’s weakness for Poly Real Estate Group Co. (SHA).


Gold in the nation was also weaker following the higher likelihood that President Obama will pass a $3.7 trillion debt-cutting plan that would diminish the price of bullion. Gold bullion, often regarded as a safety purchase during times of economic uncertainty, had been looking increasingly attractive as the arguments over the deficit raged on. With resolution seeming drawing nearer; however, gold’s appeal fell. Zijin Mining slumped today alongside Zhongjin Gold Corp., the country’s second-largest bullion producer by market value. The third largest, Shandong Gold Mining Co. was also lower for the day.



Any change significant enough to matter draws vigorous opposition from those who depend on the status quo.
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