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China to emerge from recession sooner than global peers, says Mirae

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China’s economy is set to recover and achieve above eight per cent GDP growth in the second half of 2009, according to Mirae Asset Global Investments, an asset management company in Asi

China’s economy is set to recover and achieve above eight per cent GDP growth in the second half of 2009, according to Mirae Asset Global Investments, an asset management company in Asia.

Byung Ha Kim, associate director at Mirae, says: ‘The investment opportunities in China are attractive in the short and long term. In the short term China has one of the world’s strongest balance sheets and its CNY4,000bn (equivalent to USD575bn) stimulus package and loosening monetary policy is already having a positive impact on domestic consumption and investment demand. Meanwhile, the world’s major economies are taking coordinated stimulus measures to greatly reduce any further unexpected shocks to the credit market.

‘From a longer term perspective, we expect China to effectively transform its export driven economic growth into higher domestic consumption. We believe this will result in stellar economic growth for another decade driven by new growth engines, like urbanization, financial services, and the growth of high value-added industries.’

Merger and acquisition activity in China is a theme that Mirae believes offers many opportunities for investors. Whilst global M&A activity has fallen since the credit crunch, the prospects for Chinese cross-border M&A activity are looking extremely positive. 

Kim says: ‘Riding on the weakening of foreign currencies relative to CNY and falling commodity prices, Chinese commodity firms in particular are aggressively seeking acquisition targets in the resources sector to secure its commodity supply. In the next couple of years we may see other sectors doing the same thing, seeking acquisition targets and good strategic alliances globally. Similar to Japan in the 80s and the US in the 90s, the Chinese-centric outbound investment theme will flourish.’

Mirae also believes that current valuations are very attractive as corporate earnings for certain sectors, such as insurance, oil refineries and some industrial companies, have bottomed out. The company expects 11 times PE on bottom earnings, which bodes well for investors. 

However, the company warns that there may be some short term volatility with the recent A share market rally.

‘As banks tighten lending standards on discounted bills, and as short term loans are transferred into longer term loans, liquidity of the A share market is likely to constrict which will cause some volatility. However, with improving economic and corporate fundamentals, it will continue to trade to the upside,’ says Kim.

‘Furthermore, China’s fiscal deficit budget for 2009 was CNY950bn (USD139bn), a record high in six decades as the country boosts spending to cushion the impact of the global economic crisis. That amount of spending will support a three per cent shortfall in GDP growth from exports related slow-down. But overtime the multiplier effect of government spending will turn into corporate earnings growth.’

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