Revaluation talk boosts views on China stocks
(Shenzhen Daily/Agencies)
Updated: 2005-03-18 14:38

Speculation that China could soon increase the value of its yuan currency is prompting investment banks to raise their expectations for China stocks.

Goldman Sachs said a rising yuan would boost book values of Chinese firms, lift earnings for some of them, and lower the equity risk premium for Chinese stocks.

JP Morgan upgraded its rating on China stocks to "overweight" from "neutral," driven by its expectation that the yuan, also called the renminbi, will begin appreciating in the first half of this year.

"Chinese shares are the most liquid way for investors to benefit from a stronger renminbi," the US investment bank wrote in a research note dated Wednesday.

Foreign equity investors typically access China through mainland companies that are listed in Hong Kong, which are known as H shares and red chips.

Premier Wen Jiabao said Monday that China could surprise financial markets in deciding when and how it reformed the yuan — comments that were viewed as a warning to speculators trying to guess what the country might do.

Goldman Sachs said Thursday in a research note that China's strong US$11 billion trade surplus for the first two months of this year reaffirmed its view that the yuan could gradually add about 5 percent in value.

It said the top five potential winners of yuan appreciation among the stocks it covered were Sinopec Zhenhai Refining & Chemical, top PC maker Lenovo Group, Asia's largest refiner Sinopec, China Eastern Airlines and China Southern Airlines.

The top potential losers would be Sinopec Yizheng Chemical Fibre and Sinopec Beijing Yanhua Petrochemical, as well as auto parts maker Norstar Founders, Shanghai-listed Fuyao Glass and China's largest chipmaker, Semiconductor Manufacturing International, Goldman Sachs wrote.