China's stock market, the worst performer in Asia this year, is "near the bottom" and may rally as much as 14 percent as policy tightening concerns ease amid slowing economic growth, according to Citigroup Inc.
The Shanghai A-Share Stock Price Index, which rose 0.7 percent to 2,713.20 yesterday, will probably reach 2,800 to 3,100 before the end of the year, outperforming gains in Hong Kong-traded Chinese stocks, analyst Minggao Shen wrote in a report. Still, the market may be "mixed" in the near term before being spurred by a "liquidity rally," he said.
"Policy headwinds that had caused turbulence in the market are finally settling, along with downward trending economic growth," wrote Shen. Citigroup was jointly ranked second in Institutional Investor's inaugural All China research team poll this year.
The A-share index and the broader Shanghai Composite Index have both slumped 22 percent in 2010 after the government increased downpayment requirements on home sales and ordered banks to set aside more deposits as reserves. Both gauges have climbed almost 9 percent from this year's low set on July 5.
China's economic growth slowed to 10.3 percent in the second quarter from an 11.9 percent increase in the January to March period. Data released this month also showed property prices in 70 Chinese cities fell 0.1 percent in June from the previous month and banking lending cooled last month.
China will maintain stability in its economic policies in the second half of the year, Premier Wen Jiabao said in a speech in Beijing July 16.
Goldman Sachs Group Inc said it's still "fundamentally positive" on A shares even after this month's surge, given their valuations and the emergence of several catalysts.
China's economy may bottom in the fourth quarter of 2010 or the first quarter of 2011, Citigroup's Shen said. He recommends investors to be "overweight" in consumer, insurance, transportation, health-care, auto, technology and electrical machinery and equipment shares.
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- Video: Performance of Chinese mainland stock market 2010-07-19