Still Cautious Equities

February 2008 | Market Strategy

The Shanghai Composite Index (SCI) posted its biggest daily gain since June 2005 on February 4, as Chinese regulators took official steps to help restore investor confidence in the benchmark index. While this now suggests that the SCI will remain well supported in the short term, we nonetheless retain our cautious views towards Chinese equities. Tighter monetary conditions and US economic difficultiesare likely to impact negatively on Q108 corporate earnings, which will likely drag on the index going forward, while the government's unwillingness for prices to once again move into over inflated territory will likely limit any drastic upside in the event of a further bounce for the SCI.

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