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Prudential Likes Chinese Consumer Stocks: Duh.

China Consumer Stocks Among Asia’s Best Bets, Prudential Says
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By Bloomberg News

July 29 (Bloomberg) -- China’s consumer-related stocks traded in Hong Kong are among the best bets in Asia as government efforts to spur domestic demand succeed, said Prudential Asset Management (Singapore) Ltd.’s Sang Hoon Lee.

The central government said in January it will spend 850 billion yuan ($124 billion) to ensure at least 90 percent of its 1.3 billion citizens have basic health insurance by 2011. China must lower its savings ratio to help ease global imbalances, central bank Governor Zhou Xiaochuan said July 3. The nation’s household savings averaged at about 20 percent of gross domestic product between 1992 and 2007, he said.

“The government is addressing this issue the right way through fiscal spending and a reallocation of resources,” Lee, a portfolio manager at Prudential Asset, said in a telephone interview yesterday. “Chinese consumers are under-leveraged so they can lever up so that they have more consuming power.”

Automakers and dairy producers are among the industries that will benefit from increased consumer spending, said Lee, declining to be more specific. Prudential Plc has $410 billion in assets under management, including about $60 billion in Asia.

Shares of Dongfeng Motor Group Co. trade at 16.3 times reported earnings, less than the 19.6 times the Hang Seng China Enterprises Index fetches, weekly Bloomberg data show. That’s even after the 246 percent gain this year by the Chinese maker of diesel engines and light trucks.

The nation’s overall auto sales, including buses and trucks, rose 36 percent in June from a year earlier, as the government’s economic package helped the country surpass the U.S. as the world’s biggest auto market this year.

Mengniu Dairy

China Mengniu Dairy Co., the country’s biggest producer of milk by market value, trades at 12.17 times trailing earnings, compared with its peak of 54.22 times in October 2007. Its valuation is the cheapest versus the so-called H-share index in at least four years. The stock plunged 60 percent on Sept. 23 after some of its products were found to contain an industrial chemical. It’s since rebounded 129 percent.

Premier Wen Jiabao unveiled a 4 trillion yuan ($585 billion) stimulus package last year and loosened lending restrictions to boost domestic demand as the global recession collapsed growth in the country’s exports.

New lending tripled to more than $1 trillion in the first half of 2009 from a year earlier, fueling concern that banks are taking on too much risk and asset prices are rising too fast. The central bank said today inflation may rebound in the second half of this year.

“We prefer resources, energy and property stocks, because of the inflation expectation,” said Lu Wenbin, an investment manager at Bank of Communications Schroders Fund Management Co. in Shanghai, without naming any specific stock. There’s “more room for upside” for these stocks as China’s economic growth recovers, he added.

--Chua Kong Ho. With assistance from Zhang Shidong in Shanghai. Editors: Richard Frost, Linus Chua

To contact the Bloomberg News staff for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net