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Hopes for rebound of A shares arise

By Shi Jing in Shanghai | China Daily | Updated: 2018-08-13 11:00
An investor looks at share prices at a brokerage in Fuyang, Anhui province, on Friday. [Photo by Wang Biao / For China Daily]

Bargains, low chance of record lows trigger talk of long-term prospects

Despite the slump in A shares in the first week of this month, investors remain optimistic that long-term prospects are intact as a bottoming-out market could present good opportunities to bag handsome bargains, market insiders said.

The benchmark Shanghai Composite Index fell 4.63 percent in the first week, the second-biggest slump so far this year. The ChiNext Index, China's Nasdaq-style board, plummeted 7.08 percent, hitting 1,510.09, the lowest level since 2015.

Analysts from Beijing-based Pacific Securities wrote in a note that there is limited room for A shares to hit record lows of the kind witnessed in June 2013 and January 2016.

Data from market information provider Wind showed the A-share market's PE ratio is around 16 at present. In the past, the market had reached levels that were considered the bottom then in June 2005, October 2008, June 2013 and January 2016, when the PE ratio was around 16.

Experts from China Merchants Securities wrote in a report the opportunities for investment in certain A-share companies will increase this month.

They arrived at their view based on four main reasons:

First, uncertainties brought about by overseas markets will be mitigated by a number of new economy-stabilizing policies of the central government.

Second, liquidity will improve as China's central bank is stressing on market stabilization.

Third, the A-share market's 5 percent inclusion in the MSCI index as a second step in a progressive process will hopefully bring in another 40 billion yuan of investment into Chinese stock markets.

The MSCI inclusion's first phase was in May, which brought in additional investments mainly focused on blue-chip companies.

Fourth, A-share companies will release their interim results this month and thus investors' risk appetite will likely be whetted.

Market mavens said when the A-share market reaches its bottom, which could be sooner than later, newly released fund products may find it easier to register better performance.

Between 2008 and 2014, there were three periods when the benchmark SCI remained below 3,000 for five consecutive months. But the fund products released during those periods have all reported a profit growth of over 95 percent up till now, according to information portal ChinaFund.

That kind of historical insight encouraged funds to launch seven market products last week, three of which were hybrid funds while the other four were bond funds.

Guangzhou-based E Fund Management Co Ltd was one of the issuers. Zhang Kun, managing director of E Funds, said up to 80 percent of the newly issued fund products will focus on A-share blue-chip companies, which offer stronger safety margin and more certainty on growth, thus promising long-term positive returns on investments.

According to a note from Morgan Stanley Huaxin Funds, the market may fluctuate in the short term, but the A-share market is worth investing in, particularly from a long-term perspective. The recent ups and downs merely reflect the mood swings of investors, the note stated.

China's economy will continue to grow steadily amid restructuring, with consumption making more contributions to GDP. As the central government is dedicated to further open up the markets, the impact of trade frictions on the larger economy will likely be subdued. So, the A-share market is likely to pick up, MSHF analysts argued in their note.

Heightened activity of overseas institutional investors in China also appears to suggest that profit opportunities abound in the A-share market, given its current relatively low PE ratio against a background of stable economic growth, market people said.

In early July, global investor BlackRock registered its first onshore equity fund in China for qualified institutional investors and high net-worth individuals.

According to ChinaFund, 14 overseas institutional investors qualified to be private equity securities investment fund managers. Among them, 10 institutions have already rolled out their products in China.

Currently, there are 16 registered foreign private equity fund products in China, according to market data.

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