China Economy to Rebound as Stimulus Spurs Investment (Update1)

China’s economy, the world’s third largest, may rebound this quarter as Premier

When Jiabao’s 4 trillion yuan ($585 billion) stimulus package cushions the effects of

the global recession. 

Urban fixed-asset investment surged by almost a third in

March and industrial-output growth accelerated, reports accompanying China’s

gross domestic product figures showed yesterday. 

First-quarter GDP grew 6.1 percent, the slowest pace in almost a decade, as exports slumped.

(source, CIMB Research)

Key generators of recovery

The powerful tailwinds of low interest rates, pro-growth fiscal policy and improving

terms of trade are generating a recovery in the emerging economies led by China,

says JP Morgan. 

JP Morgan Securities (Asia Pacific) Ltd chief Asian and Emerging

Markets equity strategist Adrian Mowat viewed that market recovery was supported

by a recovery in the emerging markets and demand led by China. “We argue that

the potential for the MSCI EM (Emerging Markets) Index to return to pre-Lehman

Brothers bankruptcy levels by year-end is high,” he told a press briefing yesterday.

Mowat also opined that emerging markets offered lower risk and volatility as well as

higher returns in periods of high-economic stress. He noted that there was

increasing evidence that the China government’s aggressive stimulus package was

re-accelarating domestic activity against a backdrop of weak external demand.

(source, CIMB Research)

The local stock market outlook is promising and set for further gains due to the

"political succession effect and the bottoming of foreign selling," CIMB Research

said. "We see an improved outlook for the market due to a few reasons," the

research house wrote in its latest report. "One is the political succession effect when

Datuk Seri Najib Tun Razak took over as prime minister. Historically, the market

performed strongly in the three to six months before and after the changes." CIMB

Research recently upgraded its rating on the local stockmarket to "overweight" from

"neutral" and also raised its target for the KL Composite Index (KLCI) to 1,060

points from 1,013.

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