Bangkok: China’s stocks are more attractive than those in India as government stimulus spending drives faster economic recovery, Bank of America Corp.’s Merrill Lynch and Co. unit and the Royal Bank of Canada (RBC) said.
China’s economic growth will accelerate in the second half because of large government stimulus and strong consumer demand, Stephen Corry, Hong Kong-based investment strategist for Merrill Lynch Global Wealth Management in the Asia-Pacific region, said in an interview in Bangkok on Tuesday.
China’s gross domestic product (GDP) grew 7.9% in the second quarter as the nation became the first of the major economies to rebound from the global recession.
The Chinese government’s 4 trillion yuan (Rs28.56 trillion) spending package and record bank lending have helped the Shanghai Composite Index to soar 78% this year, making China the world’s best performing major market.
Share price gains last week helped China briefly overtake Japan as the world’s second largest stock market by value for the first time in 18 months.
Excessive bank lending in China is a concern, Corry said, as it will increase risk of loan defaults and a property market bubble. Brian Jackson, a senior emerging market strategist at RBC, also prefers China over India. He said India has shown weakness in its fiscal policy.
“We are worried that India looks set to remain in a fiscal no-man’s land, unable to deliver meaningful fiscal stimulus because of its rating outlook, but also unable to address the structural budget problems that lead to persistent large deficits,” Jackson said at a Bloomberg Forum in Taiwan on Tuesday.
The Bombay Stock Exchange’s benchmark Sensex index dropped 5.8% on 6 July, its largest fall in six months, after the government said its budget shortfall will widen to 6.8% of GDP in the fiscal. The Sensex remains 56% higher this year, the world’s fifth best performing market. The index is valued at 18 times estimated earnings, compared with an average of 17 times for the past two years.
The Shanghai Composite has a multiple of 24 times, making China the most expensive market in Asia after Taiwan and Japan.