Jan 06, 2011 02:58 PM

Inflation to Impact Stock Market in 2011

(Beijing) -- Inflation concerns may lead to a downturn in the stock market, according to Nomura Securities.

Wu Haifeng, head of the A-shares research department at Nomura, said inflation expectations will likely to drag down the stock markets.

"Any round of falls in share prices would be an opportunity to buy as it would bring safe returns in the long term," said Wu.

Nomura Securities found that three periods of high inflation appeared from 2003 to 2004, 2007 to 2008 and the most recent one starting from June 2010.

Past experience has shown a correlation between inflation and stock markets, according to Nomura.

"At the beginning of the inflation period, stock markets were negatively affected; at the middle of the period, stock markets made adjustments; and at the end of inflation, stock markets were set in an upswing," said Wu.

Nomura is upbeat about China's economic outlook for 2011, saying the sentiment would be a factor in boosting stock markets.

Wu recommended investors to buy shares of companies in the industries of banking, consumer products, real estate, petrochemical industry and computer games.

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