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China sweetens FTSE as Lloyds named 'UK top pick'
by Chris Marshall on Aug 09, 2013 at 09:44
Is China’s slowdown over? That was the question investors were contemplating on Friday morning as more upbeat data from the world’s fastest growing major economy helped the FTSE 100 towards a second consecutive day of small gains.
Following on from Thursday’s report showing Chinese trade growth, official data showed inflation unchanged in July at 2.7%, while industrial production growth accelerated to 9.7% in July from 8.9% in June. Retail sales growth and investment spending was little changed from the previous month.
‘Along with the trade and PMI data, this suggests that China ’s economy is bottoming out,’ commented Li-Gang Liu, an economist at ANZ Research.
‘The concern of a hard landing has largely diminished,’ he added, predicting that China’s 7.5% growth target is now more attainable again.
A snapshot of how economists are interpreting today’s data on China:
Jun Ma, Deutsche Bank: ‘We believe that the demand for heavy manufacturing is beginning to recover, led partially by the stabilization of the inventory cycle and partially by the rise in corporate confidence due to the mini stimulus measures announced since the beginning of July.’
Zhiwei Zhang, Nomura: We believe the government will maintain the current policy mix in H2 – i.e., keep monetary policy tight and leave property market policy loose. This should allow the two pillars of investment growth – infrastructure and property – continue to support the economy through the deleveraging process.'
Li-Gang Liu, ANZ: Going forward, we believe that the Chinese authorities are unlikely to launch large scale stimulus and will put more emphasis on “manufacturing rebalancing”.'
Ting Lu, Bank of America Merrill Lynch: ‘By considering the rebounding official PMI and trade data as well as the subdued inflation readings in July, we expect today’s data will have quite positive impact on commodities, commodity-related currencies and some Chinese stocks (especially cyclical names exposed to FAI). Many Street economists will likely to revise up their overly pessimistic 3Q GDP growth forecasts soon.’
Any joy at the improved data was tempered by the reduced chances of stimulus from the Chinese authorities that it entails.
So gains on stock markets in Asia and Europe were muted. Britain’s FTSE 100 moved 0.1% higher to 6,539, led by miners including Fresnillo (FRES.L), up 2.6% to 981p, and Randgold (RRS.L), 3.2% higher at £45.64.
Tesco (TSCO.L) shares also benefited from the China effect, up 1% to 372p as talks for a joint venture with China Resources Enterprise were confirmed.
Lloyds (LLOY.L) was also among the top risers in London, up 0.7% to 74p, after analysts at Morgan Stanley raised their rating on the bank’s shares to overweight.
‘We are more bullish than most on the outlook for UK housing, while expecting a faster capital build and potential to re-rate as dividends are reinstated. ‘
Lloyds is now the bank’s ‘UK top pick’.
Henderson was the top riser on the FTSE 250, up 4% to 175p as a string of brokers raised their target prices for the asset manager’s shares after yesterday's half-year results.
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- Fresnillo PLC (FRES.L)
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- Tesco PLC (TSCO.L)