Slowing inflation leaves room for economy growth

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The Shanghai Composite Index is poised to gain 15 percent from yesterday’s close to 2,750 by year-end as slowing inflation allows the government to loosen monetary policy and banks to lend more to companies, according to Beijing Gao Hua Securities Co., Goldman Sachs Group Inc.’s partner in China and the firm with the most correct predictions for yuan-denominated A shares in the two years to January 2012, based on Bloomberg Rankings.
The benchmark stock index has climbed 7.9 percent this year on speculation the government will accelerate measures to boost the world’s second-biggest economy after gross domestic product grew at the slowest quarterly pace since 2009. The government said on May 29 it has no plan to introduce stimulus on the scale of measures in 2008, when policy makers unveiled a fiscal package of 4 trillion yuan ($629 billion).
“We remain positive on the market this year,” Wang Hanfeng, China strategist at Gao Hua (GS), said in an e-mailed response to questions. “With inflation easing, there is a shift towards policy loosening which will help improve the liquidity situation and support the valuation expansion of A shares.”
Slowing inflation leaves room for the government to stimulate the economy as policy makers turn their attention to growth, said Wang. A statistics bureau report on May 11 showed China’s consumer prices rose 3.4 percent in April, below the 3.6 percent rate in March and the government’s full-year target of 4 percent. The economy grew 8.1 percent in the first quarter, the least since the three months ending June 30, 2009.
The Shanghai Composite slipped 0.5 percent to 2,372.23 at today’s close. It lost 1 percent this month, compared with a 13 percent plunge in Brazil’s Bovespa Index, the 6.7 percent drop for the BSE India Sensitive Index and the 11 percent slump inRussia’s Micex Index.
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