Continued growth expected for Chinese firms

31 August 2007

Fund managers have increased their forecasts for Chinese firms' profit growth in the second half of the year to 50 or 60 per cent.

Concerns have arisen over the value of the Chinese stock market as year-to-date gains have risen over 90 per cent.

A Reuters poll has shown that all respondents taking part said the index could rise above 6,000 points by the end of the year, a rise of more than 120 per cent above where it started at the beginning of the year.

Special factors have contributed to the growth in the market that lay further weight to the claims that the valuation is realistic.

New accounting rules were introduced that allowed adjustments in management expenses, which has led to an increase in net profit.

Chinese companies were also involved in lucrative asset deals where they bought good assets at bargain prices from their parents.

Speaking to Reuters, Zheng Weigang, analyst at Shanghai Securities, said: "The bulk of first-half earnings growth was real, with gains at the 100 biggest, well managed blue chips accounting for over 60 per cent of the total.

"This is expected to continue in the second half."

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