Opinion
BlackRock denies stocks are a bubble
By Allen Wan (China Daily)
Updated: 2010-03-06 10:59
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SHANGHAI - China's stocks aren't a bubble and will gain by the end of the year as the government takes measures to prevent the economy from overheating, said Bob Doll, BlackRock Inc's chief investment officer for global equities.
"I wouldn't characterize China stocks as a bubble," Doll, who helps oversee about $3.35 trillion at New York-based BlackRock, said in a telephone interview.
"There will be gains predicated on a slowdown in growth being successful and this will be completed before not too long."
Last year's rally in Chinese stocks and property prices prompted analysts including former Morgan Stanley economist Andy Xie to call the nation's asset markets a bubble that will burst once the government curbs credit.
The government has raised lenders' reserve requirements twice this year to cool an economy that grew 10.7 percent in the fourth quarter, the fastest pace since 2007, partly because of record lending.
Harvard University Professor Kenneth Rogoff said on Feb 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while hedge-fund manager James Chanos predicted a slump after excessive property investment.
The Shanghai index trades at 31.9 times reported earnings, compared with 17.98 for the Standard & Poor's 500 Index and 21.9 for the MSCI Asia ex-Japan index, Bloomberg data shows.
"China's biggest concern is how it engineers a slowdown, how it deals with imbalances between classes, how it provides jobs, and the tightening to ward off inflation," Doll said. "Inflation is certainly a risk."
The Shanghai Composite Index added 0.3 percent to close at 3,031.07 on Friday. The gauge has dropped 7.5 percent this year, the fifth-worst performer globally according to Bloomberg data, on concern the government will raise borrowing costs for the first time since December 2007 and restraint in lending will slow economic expansion.
The benchmark measure jumped 80 percent last year, fueled by a 4 trillion yuan ($586 billion) stimulus package and record lending.
"Our view is we would not be surprised if there are more rate increases but we need to see more data," Doll said.
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Another survey conducted last month predicts interest rates will be increased by the end of June.
Doll said China's stocks are in for some "sloppiness" in the short term and he has an underweight on the nation's property stocks.
"China is an emerging economy and it's going to be bumpy," Doll said. "It's not going to be a straight line."
BlackRock is the world's biggest money manager.
Bloomberg News
