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BROKER CALL - China stock market strength to continue in 2007 - Citigroup

Investor enthusiasm towards China's stock market is likely to continue into next year, with banks and telecommunication companies favored amid tax and industry reform, Citigroup said.

This article appears courtesy of ISI Emerging Markets 

Publication: XFN Daily News

Provider: Xinhua Financial Network

Date: December 5, 2006

Further appreciation of the yuan, a potential re-acceleration of investment in the first quarter and the likely listing of more leading companies on the domestic A-share market, will also fuel investor interest, Citigroup said in a note.

"The strong performance of the China market in particular for large market-cap stocks, illustrates the global investment community's major appetite for Chinese equities," Citigroup said.

A fundamental force driving investor appetite is the anticipation of further appreciation of the yuan, Citigroup said, adding that the pace of the currency's rise has increased since Henry Paulson was appointed US Treasury Secretary.

The brokerage said it forecasts a 5-7 pct annual appreciation in the yuan for 2007 and 2008.

Separately, a potential unification of China's tax rate would offer savings to listed companies, while the government may further lighten the tax burden on Chinese banks, given that they face increasing competition from foreign lenders after the opening of the sector from Dec 11, Citigroup said.

"We expect the current five pct business tax at the revenue level to be gradually reduced in the next few years.

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