HONG KONG: The Hang Seng China Enterprises Index (HSCEI) may rise to 12,500 points by the end of the year, as increased consumer spending in the world's third-largest economy boosts corporate earnings, JPMorgan Chase & Co said.

The target, which represents an 18 percent increase from Wednesday's close, is higher than an earlier forecast of 10,000, JPMorgan analyst Frank Gong said in a report yesterday. The brokerage also raised its December 2009 estimate for the MSCI China Index to 60 from 50.

The HSCEI, which tracks the H shares of mainland companies listed in Hong Kong, has gained 33 percent this year amid speculation that Beijing's 4 trillion yuan ($585 billion) stimulus package will bolster economic growth. The mainland's benchmark Shanghai Composite Index has rallied 69 percent, the world's best-performing major market.

"We still expect a sustained economic recovery in 2010 and ongoing positive earnings revisions for both 2009 and 2010 should underpin a notably higher move in mainland equity markets after a brief consolidation," Gong wrote.

Banks and developers will benefit from the mainland's "accommodative" policy environment, continued loan growth and credit expansion, the brokerage said. New loans last month totaled 1.53 trillion yuan, an almost fivefold increase from a year earlier, the central bank said earlier.

China Dongxiang Group Co, China Construction Bank Corp, China Merchants Bank Co, Dongfeng Motor Group Co and Greentown China Holdings Ltd make up JPMorgan's top picks, Gong wrote in the report.

The country is "a positive force" that will help drive growth as the world emerges from the global recession, billionaire George Soros said earlier this week.

The country's passenger-vehicle sales rose 48 percent in June, the biggest jump since February 2006, as government stimulus spending spurred a revival in the world's third-largest economy.

Bloomberg News

(HK Edition 07/10/2009 page3)