Citi's Minggao Shen Names 5 Drivers Of A Great Chinese Bull Market

Minggao Shen

This morning’s interest rate hike out of China certainly won’t crash the economy. According to Citi’s Minggao Shen, even 175 basis points over the next two years won’t slow down China.

Shen wrote in an end-of-year note: “[E]ven with our benign inflation forecast and aggressive rate hike expectations, real 1-yr deposit rates would stay negative until early 2012… Thus, without appropriately high interest rates, efforts to fight consumer and asset inflation would be significantly discounted.”

Risks of hyperinflation and social tension won’t go away, but the stock market will keep rising.

Shen identifies 5 key drivers of Chinese growth. These are: inflation, liquidity, valuation, the US dollar, and earnings.

INFLATION: Food prices, wage inflation, etc., will outpace rate hikes from the PBoC

LIQUIDITY: Monetary supply is high and has nowhere to go but stocks

VALUATION: Chinese stocks are still much cheaper than emerging market peers like India

THE US DOLLAR: A projected 5% drop for the dollar means RISK ON

EARNINGS: Projections show steadily rising earnings

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