Chinese Officials Discontinue Monetary Tightening
China's monetary tightening campaign to prevent inflation and asset bubbles has lowered inflation to an annualized 2.9%. Investors should prepare now for a rebound in commodity prices as fears of Chinese demand ease.
"There's no more tightening happening in China..." head of China research for Standard Chartered Bank in Shanghai Stephen Green told Bloomberg today.
China posted a steady 10.3% growth in the second quarter and economists expect that rate to continue for the remainder of 2010. By contrast, the U.S. will struggle to grow at 3.3% this year.
"[China's] had a bear market for a year. Valuations are now very attractive on certain companies. We've got all the background for a new phase of a bull market," said Anthony Bolton, president of investments for Fidelity International. "A lot of people are too negative about China..."
China's economic growth will be fueled by sustainable domestic demand for retail and real estate development. Real estate development projects started under last year's stimulus program are still 2-5 years away from completion. And that will mean continued demand for building materials like steel, copper and cement.
Despite China's slowing economy, 2010 will still be a record year for steel with production up 10%.
One of China's leading suppliers of coal for steel production has sold off 34% on fears that steel production would be cut. It currently trades with a forward P/E of 3. But with China's growth back on a steady course, share prices for this coal stock are expected to rise 44% back to recent levels.
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