EVEN AS CHINESE President Hu Jintao prepares to step down as General Secretary of the Communist Party in China and hand over the reins to his designated successor Xi Jinping in a once-in-decade power transfer next week, he has vowed to spearhead further economic reform and social development.
In a voluminous report delivered at the 18th Communist Party congress on Nov 8, Hu promised to double China’s 2010 GDP and per capita income for both urban and rural residents by 2020. This is slightly different from the previous Party congress when Hu said nominal GDP of China in 2020 should be quadrupled from that of 2000. It is also the first inclusion of a per capita income growth target in the Party's ruling history, underlining the Party's commitment to sharing more benefits of economic development with the ordinary people, notes HSBC.
Hu’s growth target implies an annual growth rate of about 7% in China’s real GDP, in line with the country’s 12th five-year plan. It also translates to growth about 7% in per capita income over the next 10 years under incumbent President Xi’s rule. In comparison, China’s rural and urban resident income has increased by more than 9% on average in the past few years, according to HSBC.
Importantly, the move to improve the country’s economy comes alongside promises to implement a host of other social, political and environmental changes. It also comes on the back of a positive set of inflation data released Nov 9, underscored by a 1.7% yoy rise in October’s Consumer Price Index. Meanwhile, producer prices eased to a pace of 2.8% yoy in October compared to a drop of 3.6% in September, driven by higher raw material prices. “The combination of lower CPI and recovering PPI growth implies benign inflationary pressures amidst a gradual growth recovery,” notes HSBC. “This leaves room for Beijing to maintain an easing bias to consolidate China's growth recovery, given continued external headwinds especially with the US’ looming fiscal cliff.”
The relatively low-key transition of power in China coincides with President Barrack Obama’s win in the fiercely contested US elections which has led to a slide in global bourses on fears of a looming fiscal cliff, that is, tax increases and spending cuts that will automatically take effect in the US next year should the country’s politicians fail to reach a compromise on reducing the budget deficit. The market’s concerns were also felt in Singapore, where the Straits Times Index weakened during the week even as earnings season gathered momentum in the city-state.
Among the latest to announce its corporate earnings is Wilmar International, which reported a dismal set of results for the nine months Sept 30, 2012 on Nov 9. During the period, the commodity trade and supply chain manager saw earnings drop by about a third yoy to hit US$778.7 million ($953 million) on the back of a 2% yoy rise in revenue to US$33.8 billion, owing to the poor performance of its oilseeds and grains and plantations and palm oil mills arms, which were down on poor crushing margins and lower production yield, respectively. However, Wilmar fared better during the July-September quarter with most of its key segments reporting higher profits during the period.
Wilmar’s results came a day after Noble Group recorded a 17% yoy rise in earnings to US$380 million on the back of a 15% rise in revenue to US$69.8 billion over the same period. On a quarterly basis, Noble managed to reverse losses amounting to US$17.5 million in 3Q2011 to earnings of US$75.2 million in 3Q2012. However, the company’s improved performance failed to impress some analysts, who noted that its results came in below expectations.
“What surprised us this quarter was the agriculture division’s poor showing,” writes Lee Wen Ching of CIMB. “Despite new sugar assets and the peak harvesting season, agriculture revenue fell 34% yoy and 10% qoq, which management blamed on poor China crush margins and volatile corn and soybean prices. [Meanwhile], higher depreciation from the new sugar mills further dampened profit margins.” As such, Lee has cut her earnings forecast for Noble and slashed her target valuation on the stock to $1.45 over the next 12 months from $1.61 before. She expects shares of Noble to weaken over the near term, but is maintaining her outperform rating on stock.
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