Janney Montgomery Scott LLC is advising investors to buy Chinese equities for the first time in two years on prospects Premier Wen Jiabao’s pledge to boost investments and monetary stimulus will support growth in the world’s second-largest economy.
“We’re prepared to add as the evidence accumulates that directionally they’re prepared to become more aggressive to reflate economic activity,” Mark Luschini, the chief investment strategist at Janney Montgomery, the 180-year-old Philadelphia brokerage, said by phone on Sept. 13. “China has been reluctant to act, so these forward-thinking actions have really been the catalyst for the turnabout.”
The Bloomberg China-US Equity Index of the most traded Chinese shares in the U.S. completed the biggest weekly advance this year, buoyed by the latest U.S. Federal Reserve steps and Wen’s comments last week that China still has “ample strength” in either monetary or fiscal domains to propel growth. Economic growth decelerated for a sixth time in the second quarter, expanding 7.6 percent, the slowest pace in three years.
A combination of expensive stocks and concern growth in the Asian economy wouldn’t be sustainable drove Janney Montgomery in August 2010 to recommend investors cut their holdings to zero, he said. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong has declined 17 percent since then, sending valuations to 8.1 times estimated earnings, 34 percent below its three-year average of 12.19, according to data compiled by Bloomberg.
‘More Bullish Now’
China announced two infrastructure spending plans earlier this month and the European Central Bank plans to buy bonds to support the euro.
“Of our emerging market exposure, we’ve taken a very circular strike on Chinese equities,” Luschini said. “I’m more bullish now on emerging markets than I have been in about 18 months.”
Chinese shares traded in New York gained 5.7 percent last week to 93.91, the largest advance since the five days ending Dec. 2. Commodity producers were among the biggest gainers as Aluminum Corp. of China Ltd., the nation’s largest maker of the metal, climbed to the highest in four months, and Cnooc Ltd., its biggest offshore oil explorer, advanced to a one-month high.
Oil also rose to a four-month high and commodities recorded their longest run of weekly gains since October 2010 following Fed Chairman Ben S. Bernanke’s Sept. 13 announcement that the U.S. central bank will purchase assets to boost growth.
“The actions by central banks in the U.S. and the E.U. are designed to push investors into risk assets, and emerging markets will be a beneficiary of that,” Deborah Velez Medenica, the head of emerging markets at Fred Alger Management Inc., which manages about $17 billion, said by phone from New York on Sept. 14. “Investors are putting their money into laggards year-to-date, and commodity producers may continue to see support for prices that have fallen.”
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., added 4.5 percent last week to $35.19, a one-month high. The Standard & Poor’s 500 Index rose on Sept. 14 to the highest level since 2007, climbing 0.4 percent to 1,465.77.
Aluminum for three-month delivery rose for the 11th straight session, gaining 4.7 percent on Sept. 14 to $2,200 a ton on the London Metal Exchange, the longest rally in at least 25 years.
Oil at $99
American depositary receipts of Aluminum, also known as Chalco, jumped 12 percent last week to $11.06, the highest level since May 8. Cnooc’s ADRs climbed 9.5 percent for the week to $204.07, the highest in a month.
Crude oil for October delivery increased 0.7 percent to settle at $99 a barrel on the New York Mercantile Exchange after rising as much as 2.1 percent to touch $100.42 on Sept. 14. The S&P GSCI Spot Index of 24 commodities increased 2.6 percent to 694.21 last week.
Yanzhou Coal Mining Co., China’s fourth-largest producer of the fuel, gained 8.3 percent last week to a four-week high of $15.99. SouFun Holdings Ltd., the biggest real estate information website in China, advanced 9.4 percent for the week to $14.73 while Baidu Inc., owner of China’s most-popular online search engine, advanced 5.5 percent in that same period to $115.62, a two-week high.