Deutsche Bank presents its 2011 China investment strategy and economic outlook at DB Access China Conference
Deutsche Bank today outlined its 2011 China investment strategy and economic outlook at its 9th annual DB Access China Conference in Beijing. The event, which is being held January 10-13, is one of the largest investor conferences in China and will attract over 1,100 investors from many of the world’s largest asset management houses, hedge funds, pension funds, and banks.
Dr. Jun Ma, Deutsche Bank’s Chief Economist for Greater China, who was ranked Best Regional Economist in Asiamoney’s 2010 broker poll, delivered the keynote address. In his presentation, Dr. Ma outlined an expectation for a modest deceleration in mainland GDP growth on the back of a slowdown in exports and forecasted 8.7% annual GDP growth for 2011.
“The inflation trajectory will likely be the most important macro driver for market performance in 2011,” Dr. Ma emphasized, adding that the trajectory will move from inflation in the first half to disinflation in the second half of 2011. “We expect inflation to peak at 5-6% year-on-year in the second quarter and decline towards 3-4% in the second half of 2011.” He noted that the key risk to this outlook is a failure to tighten policy or implement aggressive anti-inflation at the beginning of the year.
With respect to monetary policy, Deutsche Bank’s policy rate expectation is for another three rate hikes totaling 75bps, and an appreciation of the renminbi by 4-5%.
Regarding equity strategy, Dr. Ma forecasts average upside potential of around 15% for the MSCI China in 2011, based on an expectation of 15% EPS growth and unchanged market valuation at year-end.
Dr. Ma also outlined six key structural themes that investors should consider in 2011:
- Financial Reforms: Five major challenges for the banking sector this year – a slowdown in loan volume growth, promotion of direct finance, interest rate liberalization, RMB internationalization, and tougher bank regulations – will put pressure on banks’ net interest margins (NIM) over the medium term. Larger banks with more resilient NIMs and more sustainable business models are favored over mid-sized banks.
- Public Housing: Total public housing investment will likely double in 2011, supporting cement prices and putting pressure on mid-end developers.
- Equipment Sector Growth: The growth of the equipment and machinery sectors should significantly outpace that of labor-intensive and material-intensive manufacturing sectors as China upgrades its manufacturing sector.
- Consumption Shift to Services: The shift from consumption of goods to consumption of services underpins Deutsche Bank’s forecast for strong growth in the sub-sectors of branded real estate agencies, tourism, IT services, enterprise software, and culture and entertainment.
- Energy Saving and Environmental Protection: Government efforts in this area will create interesting investment opportunities in sectors such as smart grid equipment, wastewater treatment and waste recycling sectors.
- Inland Development: Inland growth should significantly outperform coastal areas, with a growth differential of as much as 3%. Inland real estate, cement, banking, and retailers should benefit.
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Deutsche Bank AG
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About Deutsche Bank
Deutsche Bank is a leading global investment bank with a strong private clients franchise. A leader in Germany and Europe, the bank is continuously growing in North America, Asia and key emerging markets. With more than 80,000 employees in 73 countries, Deutsche Bank offers unparalleled financial services throughout the world. The bank competes to be the leading global provider of financial solutions for demanding clients creating exceptional value for its shareholders and people.
About Deutsche Bank in China
Deutsche Bank first established a presence in China in 1872 with the opening of an office in Shanghai. Today Deutsche Bank is locally incorporated in China, and employs over 500 staff in Beijing, Shanghai, Guangzhou and Tianjin. In addition, the bank has a regional hub with over 1,400 staff in Hong Kong SAR, which celebrated its 50th anniversary in 2008. The bank also maintains securities representative offices in Beijing and Shanghai.
Through rapid organic growth and strategic investments, Deutsche Bank’s core global businesses are all active in China. These include corporate advisory and capital markets; transaction banking; private and retail banking; and asset management. The bank is strong in cross-border investment banking services. To date, it has book-run three of the largest IPOs in history for its clients in China.
Deutsche Bank also has a retail banking presence in China. In May 2006 the Bank acquired a stake in Hua Xia Bank – a nationwide bank listed on the Shanghai Stock Exchange – and launched joint credit card operations in June 2007. Deutsche Bank now holds 19.99% of Hua Xia Bank, subject to regulatory approvals.
In Asset Management, Deutsche Bank holds a 30.0% strategic investment in Harvest Funds Management –one of the country’s leading investment managers.
Deutsche Bank and Shanxi Securities Co. Ltd.’s joint venture – Zhong De Securities Co. Ltd. – received a securities business license from the China Securities Regulatory Commission (CSRC) in July 2009. Complementing Deutsche Bank’s existing products and services in China, Zhong De Securities is currently approved to underwrite and sponsor A-shares, foreign investment shares, and government and corporate bonds and provide corporate advisory services on the domestic market. Deutsche Bank holds 33.3% of the joint venture.
The information provided is neither financial advice nor recommendation, offer or solicitation to engage in a financial transaction. DB may have relationships with companies mentioned herein.