Shanghai composite index predicted to grow about 5% by year-end
China’s A-share market continued to see inflows of foreign capital in the first half of 2023 despite recent market fluctuations, attracted by a lower valuation of the A-share market and the country’s strong economic recovery expectations supported by a series of pro-growth measures.
The Chinese stock market experienced ups and downs in the first six months of the year, but still the flagship Shanghai composite index gained 3 percent and stood above 3,200 points. The Shenzhen Component Index rose 0.1 percent over the period, while the ChiNext board was up 5.61 percent.
Capital inflows through northbound connect system, or money invested from Hong Kong into the Chinese mainland, exceeded 180 billion yuan ($24.9 billion) between January and June, up 155.33 percent year-on-year, surpassing the total net inflows seen in 2022, according to market information provider choice.eastmoney.com.
Northbound investors contributed an all-time high of 141.3 billion yuan of monthly capital inflows into A-share market in January. Despite some outflows in April and May amid market fluctuations, the monthly inflows through the northbound connect reached 35.4 billion yuan in March and 14 billion yuan in June.
Analysts said recent price retracement has made A-shares attractive, while the implementation of a series of pro-growth policy measures will help drive up China’s economic recovery which will build up long-term confidence among the investors.
“Against the backdrop of pessimistic sentiment reaching the peak, current valuations nearly at a low point seen in October 2022 whereas listed firms’ profit continues to improve prior to the second-quarter result, we believe the Chinese stock market is still attractive,” investment bank UBS said in a recent research note.
The institution projected that Chinese stocks will have median double-digit growth returns by the end of this year.
“China is still the equity market we prefer despite latest market fluctuations,” Zhou Yun, an investment manager with Schroeder Fund Management (China) Co, wrote in an article posted on the company’s WeChat account.
The stock valuations and economic activities have seen improvement while high frequency data and PMI figures have shown that the country’s services activities have largely rebounded, Zhou said.
In June, the purchasing managers’ index (PMI) for China’s manufacturing sector came in at 49, up from 48.8 in May, ending a three-month decline, data from the National Bureau of Statistics showed.
“Along with the rollout of a basket of policies to stabilize economic growth in the second half of the year, there will be notable economic recovery soon. The Chinese economy is taking a positive turn,” Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times.
It’s a good opportunity to invest in quality A-shares now, for example, traditional Chinese medicine, food and beverage, and new energy shares, Yang said, noting that the trend of net inflows of overseas capital will continue in the second half of the year, which is expected to exceed 300 billion yuan for the whole year.
The steady opening up of China’s financial market has also incentivized foreign investors to expand their investment in A-shares. China rolled out the across-the-board registration-based IPOs earlier this year. In May, the number of stocks eligible under the Shanghai-Hong Kong Stock Connect increased significantly by 598 to 1,192 shares.
“Although China’s economic recovery has been affected by the complex external environment and slowdowns in global trade and investment, the country’s solid economic fundamentals and ample policy tools mean that the economy will continue to post strong recovery in the second half of the year,” Wang Peng, a research fellow at the Beijing Academy of Social Sciences, told the Global Times on Sunday.
The sustainable growth of the Chinese economy is unstoppable, Wang said. He said China’s low-carbon and digital transformation will upgrade manufacturing, services and other traditional sectors, injecting new momentum into economic growth.
Wang said the central government may roll out more detailed policies to drive up growth in the coming months, for example, accelerating the building of the modern industrial system and boosting traditional enterprises’ digital transformation.
UBS forecast that the People’s Bank of China, the central bank, may come up with more short-term easing policies to bolster market confidence. It said the central bank may cut the interest rate of its medium-term lending facility by 20 basis points while cutting reserve requirement ratio once or twice during the year.
In addition, the central government may accelerate fiscal stimulus through strengthening infrastructure investment and spur consumption to stabilize economic growth, UBS said.
(Global Times)
