China’s equity investors will be watching for trading cues from policy priorities and signals about fiscal stimulus at a meeting of the country’s top officials next week.
The annual gathering of the National People’s Congress, where the ruling Communist Party makes economic and policy announcements, is scheduled to kick off on Tuesday.
Areas of investor focus will include fiscal stimulus, efforts to bolster the real estate sector or consumer demand, and regulatory treatment of companies or sectors. The meeting comes as the world’s second-largest stock market shows signs of bottoming out after years of declines, with the CSI 300 now positive in 2024 after a strong rally this past month.
“The A-share market typically performed positively during the two sessions based on data since 2000,” China International Capital Corp. analysts including Li Qiusuo wrote in a note referring to the NPC and the advisory Chinese People’s Political Consultative Conference. “The market rebound since early February is expected to continue,” they said, citing low valuations and policy support.
The CSI 300 Index was down 0.3% in early trading on Friday after data showed China’s factory activity shrank for the fifth straight month in February. Still, the gauge is headed for a third consecutive week of gains.
Here are some of the key focus areas for equity traders:
Property Relief
China’s property crisis continues to be a major drag on the economy, even after numerous support measures from Beijing. How officials assess the current level of risks, the degree of financing support extended to developers, as well as its vision on how to transform the sector into a new development model would offer crucial insights to investors.
In their latest push to halt the sector’s slump, authorities increased pressure on banks to boost their property loans through so-called white lists and the central bank delivered its biggest-ever cut to a key mortgage reference rate. A Bloomberg Intelligence gauge of developer shares has erased some earlier losses following the measures, but it is still hovering at its lowest levels since 2009.
“Policy support may be further strengthened if housing prices continue to decline rapidly,” Huaan Securities analysts including Zheng Xiaoxia wrote in a note this week.
Tech Race
As competition with the US heats up, China is expected to accelerate its push to swap foreign-made technology with domestic alternatives. Areas such as 5G, artificial intelligence and chips are among the likely beneficiaries of enhanced state support. Notable companies to watch include chip industry leaders Semiconductor Manufacturing International Corp. and Hua Hong Semiconductor Ltd.
“Expectations of gains in growth stocks in the tech space are on the rise, driven by more tech and industry polices,” Guotai Junan Securities analysts wrote in a note. A rally may come toward mid-year, they said.
State and Private Firms
Investors’ enthusiasm around state-owned enterprises has returned as Beijing urged improvement in their valuations. Authorities have pledged to include the management of market capitalization in the performance reviews of SOE executives, raising hopes of improved efficiencies and profitability at these companies. Any further details on this initiative would be parsed closely.
Meantime, developments on a draft law to promote the private-sector economy would also help revive investor confidence. The law is expected to focus on the “core concerns” of private companies, including protecting their property rights and guaranteeing the interests of entrepreneurs, state media reported.
Consumer Demand
Underperforming consumer stocks such as Midea Group Co. may be in focus after President Xi Jinping urged faster replacement of traditional consumer products at a recent meeting. Shares of Chinese machinery, home appliance and auto makers gained following his remarks, and the advance may have legs if they can be translated into detailed policies at the upcoming gatherings.
Other companies to watch include Wuxi Huadong Heavy Machinery Co., Zhejiang Rifa Precision Machinery Co., Henan Xinning Modern Logistics Co., Geely Automobile Holdings Ltd., Great Wall Motor Co., BYD Co. and Gree Electric Appliances Inc.
Capital Market Reform
While NPC meetings usually don’t address the capital markets much, new securities-watchdog chairman Wu Qing has already acted fast to plug a couple of loopholes in the system — including tighter supervision of quantitative trading and restrictions on short selling.
He has vowed to take heed of all suggestions, even criticism, from market participants and address their concerns promptly, raising speculation that more fundamental reforms might be in store to create a more orderly market.
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