JP Morgan on China and Chinese Market

Jing Ulrich, the managing director and chairman of global markets, JPMorgan China, said in Hong Kong yesterday that she expected the CPI in mainland China to decrease to 6.2% and the central bank will not increase the interest rates. She also said that the stock markets in mainland China and Hong Kong slumped largely, and the market is almost at the bottom.

The commercial prices and the credit scale of the banks are decreasing slightly. It is expected that CPI will go down from 6.5% in July to 6.2% in August. PPI is also expected to decrease a bit, and there is little chance that the central bank will increase the interest rate or the deposit reserve ratio in the next few months.

The deposit reserve ratio of mainland China has been increased by three times in six years. If the economy goes down and the central bank wants to stimulate the economy, decreasing the deposit reserve ratio will be an easy choice.

The Shanghai Securities Composite Index, Hang Seng Index, and H-Shares Index have decreased by 11%, 14% and 18% respectively this year. Such decreases are almost the largest in the world. According to Jing, the decline in P/E ratios is in contrast to the good performance of the Chinese enterprises. She points out that the market is led by the emotions, neglecting the true value of the companies.

Jing believed there is not much room for the stock market in mainland China and Hong Kong to go down. Both markets are almost at their bottoms. However, it is also not likely that the indexes will rebound quickly as the macro economy policies are not clear and the Chinese economy tend to grow slower in the second half of the year.