Consumer, drug shares better bets for investors, say leading brokerages

SHANGHAI - Investors should buy Chinese consumer stocks and drugmakers and avoid developers because of uncertainty over measures to cool asset bubbles, said Shenyin & Wanguo Securities Co and China International Capital Corp (CICC).

"The tightening measures will affect market sentiment in the short term," Gao Ting and Wang Hanfeng, analysts at CICC, the top-ranked brokerage for China research in the annual survey by Asiamoney magazine, wrote in a report. "In the longer term, curbing home prices may increase the ability of the people to spend in other areas."

A measure tracking health-care stocks gained 3.6 percent in afternoon trade, the most among the 10 industry groups of the CSI 300 Index. Harbin Pharmaceutical Group Co led the advance with a 9 percent gain. A gauge of financial stocks, including property companies, slid 1.8 percent.

The Shanghai Composite Index fell 0.9 percent on Tuesday, adding to a 9.9 percent drop this year, as the government has twice ordered banks to set aside more deposits as reserves. The measure index slumped the most in almost eight months on Monday on concern a government crackdown on the property market will increase bad loans and damp consumer spending.

China on Tuesday ordered developers not to take deposits for sales of uncompleted apartments without proper approval and barred them from charging "abnormally high" prices, stepping up efforts to prevent a property bubble.

Investors should avoid stocks related to the property industry and so-called cyclical stocks with large capitalizations, Shenyin & Wanguo analysts led by Zhu Anping wrote in a report on Tuesday.

The brokerage favors consumer-related stocks in industries such as food, pharmaceuticals and apparel, according to the report.

"The risk of economic overheating will gradually recede due to tightening policies, meaning China's economic growth will slow down in the next three to six months," they said. "There's a big risk of downward revisions of earnings growth forecasts."

Shenyin & Wanguo was voted as China's most influential research unit by New Fortune magazine last year.

Bloomberg News

(China Daily 04/21/2010 page16)