Confidence in Chinese equities remains strong

Although the A-share market has witnessed drastic fluctuations of late, the long-term optimism and confidence in Chinese equities remain unchanged for experts. They cite the great importance the central leadership attaches to financial development and the positive signs in China's improving fundamentals supported by stimulative policies as reasons.

Reversing Wednesday's slide, the A-share market made a strong V-shape rebound on Thursday, pulled up by the bullish performance of market heavyweights such as securities and energy companies, especially in the late trading hours.

The benchmark Shanghai Composite Index gained 0.43 percent to close at 2845.78 points on Thursday and the Shenzhen Component Index closed 1 percent higher. Technology-focused ChiNext in Shenzhen jumped 1.93 percent. The total trading value at the Shanghai and Shenzhen bourses jumped 36.5 percent from a day earlier to approach 865 billion yuan ($121 billion) on Thursday.

Experts from Guotai Junan Securities explained that the 31.2 billion yuan net purchase of exchange-traded funds based on the CSI 300 index, which monitors A-share heavyweights, contributed to Thursday's rally. Such net inflow usually happens when the market approaches the bottom and could signal further sentiment recovery and more capital inflow.

As China devotes more effort to help the financial sector better serve the real economy, the potential of the financial industry will be further explored, its market size expanded and quality improved. This will facilitate the recovery of market sentiment, said analysts at Bosera Asset Management.

While addressing a session on promoting high-quality growth of the financial sector at the Party School of the Communist Party of China Central Committee in Beijing on Tuesday, President Xi Jinping, who is also general secretary of the CPC Central Committee, called for stronger confidence in the Chinese path to financial development, saying that the nation must continue to explore and improve the path to make it broader in practice.

Greater institutional opening-up is needed to bolster the efficiency of and capacity for allocation of financial resources and to build up the nation's global competitiveness and influence in rule-making, he said.

Wei Jianguo, former vice-minister of commerce, said at a recent forum that while the country is advancing overall institutional opening-up in the financial sector, more efforts should be devoted to serving the real economy with high quality.

A market system fit for modern financial institutions should be set up soon. The main channel via which capital can be led to the real economy should be further smoothed, Wei said.

Industry experts believe that complete market regulation and supervision will help stabilize expectations and confidence.

Yang Delong, chief economist at First Seafront Fund, said that reduction in holdings or refinancing by major shareholders should be further regulated so that capital in the secondary market can be directed to the right areas. Reforms are needed to create a better ecosystem to buoy market confidence, he said.

Chen Li, chief economist of Chuancai Securities, said that while registration-based initial public offering mechanism should be further consolidated, attempts such as shelf offering can be introduced to balance the financing pace in general and stabilize the market.

Devan Kaloo, global head of equities at Abrdn Investments, said there is room to be optimistic about Chinese equities as more supportive policies are expected, especially to boost the property sector and consumer confidence. The attractive valuation of A shares serves as a solid reason for them to show stronger returns than equities in other emerging markets in 2024, he said.

Terming the valuation of Chinese equities as "very attractive", Jason Liu, head of Chief Investment Office APAC at Deutsche Bank Private Bank, said there is more upside to Chinese equities than down in the next 12 months.

Although near-term market sentiment on Chinese equities is weak, an overall pick-up can be expected later in the year. Public consumer electronics, semiconductor and internet companies may outperform other sectors, while internet companies are expected to show fastest recovery once market sentiment turns around, Liu said.

Analysts from Bosera Asset Management said that China's fiscal policies should be moderately strengthened. The country's fiscal deficit has also been increased, laying the foundation for steady economic growth this year.

Yu Xiangrong, chief China economist of Citigroup, said that technology innovation, advanced manufacturing and modern infrastructure targeted for industrial upgrading and green transition have become the three major economic drivers in China.

China's fiscal policies should be more expansionary this year, while monetary policies should be moderately relaxed, he added.