Equities: Some sug­gest still more lee­way for growth

China Daily (Canada) - - BUSI­NESS -

The Peo­ple’s Bank of China low­ered its bench­mark one-year lend­ing rate by 40 ba­sis points to 5.6 per­cent ef­fec­tive Nov 22, and banks in­clud­ing JPMor­gan Chase & Co have fore­cast that the cut will be fol­lowed by fur­ther re­duc­tions to sup­port eco­nomic growth.

The mon­e­tary au­thor­ity re­frained from sell­ing re­pur­chase agree­ments on Thurs­day for the first time since July.

“There will still be more lee­way to go for the­mar­ket be­cause the over­all­mon­e­tary pol­icy has slightly changed to sup­port growth,” said Kelvin Wong, a Hong Kong-based an­a­lyst at Bank Julius Baer & Co, which has about $296 bil­lion un­der man­age­ment. “At least for the near term, the mar­ket should con­tinue to edge up.”

There are signs, aside from the surge in trad­ing, that the SCI’s rally has gone too far, too fast. The gauge’s 14-day rel­a­tive strength in­dex climbed to 79.6 on Wed­nes­day, the high­est level since July and above the thresh­old of 70 that­some­traders use as a sig­nal that gains are poised to re­verse.

The eq­uity gauge is val­ued at 9.6 times es­ti­mated earn­ings for the next 12 months, the high­est level since March 2013. That is 11 per­cent more ex­pen­sive than the three­year av­er­age. While the Shang­hai mar­ket is “over­bought”, the tim­ing of the peak may de­pend on whether the PBOC cuts in­ter­est rates fur­ther, said Hao Hong, man­ag­ing di­rec­tor of China re­search at Bo­com In­ter­na­tion­alHold­ings Co in­Hong Kong.

“Tech­ni­cally, it doesn’t look good,” he said. “But we may need to wait be­fore sell­ing be­cause we could be soon get­ting an­other cut.”

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