Bullish market trend to continue
The stronger-than-expected rebound of China's A-share market has signaled that this year's bullish market prospects will remain intact despite the novel coronavirus outbreak, analysts said.
The mainland stock market ended higher for the third consecutive trading day on Tuesday, after staging a surge in the previous session, as investor sentiment continued improving on positive developments in epidemic control and capital market reforms.
The benchmark Shanghai Composite Index edged up by 0.05 percent to 2984.97 points on Tuesday. By Monday, the index had recouped all the loss registered on Feb 3, when trading resumed after the 10-day-long market closure that saw a nationwide spread of the virus.
The ChiNext index, which tracks Shenzhen's innovative enterprise-heavy board, closed 1.15 percent higher on Tuesday at 2170.95 points. The index has risen by 12.62 percent since the beginning of this month.
"The market has overcome the challenges due to the outbreak and returned to its track of a slow but long bull run," said Li Daxiao, chief economist with Shenzhen-based Yingda Securities.
"Also, the trend of foreign capital flowing into the market did not stop due to the epidemic, but showed signs of accelerating," Li said, adding that the market has become increasingly attractive with capital market reforms deepening.
As of Tuesday, a net 72.8 billion yuan ($10.4 billion) worth of foreign capital flowed into the A-share market this year via the northbound trading of the stock connects between mainland and Hong Kong bourses, accounting for one-fifth of last year's total net inflow, data from Wind Info showed.
As the latest move of capital market reforms, revised regulations over refinancing of mainland-listed firms took effect from Friday. The China Securities Regulatory Commission, the top securities regulator, has eased the regulatory requirements for companies listed on ChiNext to issue new stocks to preselected investors.
The relaxed regulations not only boosted investor sentiment and rendered a handy tool to listed tech firms for raising capital, but will attract more mid-to-long-term funds into the market, analysts said.
Yan Qingmin, vice-chairman of the CSRC, said on Saturday that the epidemic will not derail China's capital market reform and opening-up and that the commission will promote market stability and resilience by deepening reforms.
"The country needs capital market reforms to promote technological innovation and economic upgrades. This is why I am especially upbeat about market performances of the ChiNext and Shanghai's newly-launched sci-tech innovation board," said Li Xiaotong, a Beijing-based independent analyst.
Cyclical factors also count, Li said, as the A-share market now has a low valuation by global standards and has entered a rebound cycle since last year, following a market decline that lasted for three-and-a-half years from the 2015 market meltdown.
Xun Yugen, chief strategist with Haitong Securities, said the epidemic is expected to take a toll on earnings growth for February and even the first quarter of the year, but it should see a considerable recovery from the second quarter on the back of growth-stabilization policy efforts.
The full-year earnings growth of A-share companies this year may slow to 10 percent to 12 percent year-on-year from the prior estimate of 15 percent, but still higher than the 8 percent for last year, he said.
Therefore, the narrative that a higher corporate earnings growth compared with 2019 will drive a market uptrend this year remains intact, he said in a report.
What will also fuel the upward trend in the mid term is that technology upgrades driven by 5G will continue boosting the fundamentals of listed technology firms, while a post-epidemic ample liquidity condition will drive up stock valuations, said Zhang Xia, chief strategist at China Merchants Securities in Shenzhen.
The country's top leadership has reaffirmed the determination of securing this year's economic goals on different occasions, which has strengthened analysts' confidence over an accommodative monetary environment this year to cushion economic losses brought by the epidemic.
Though there is a strong basis for the A-share market to climb higher this year, given the favorable policy and cyclical condition, as well as the still-solid fundamentals led by tech firms, near-term risks should not be underestimated, according to analysts.
The market's uptrend may be affected if the first-quarter economic data miss expectations or if any possible reverses in the declining infection figures spook investors, they said.
Being selective may be advisable, as among the 187 listed firms that had disclosed how the epidemic would influence their business by Feb 11, 40 percent said the impact is negative, while 20 percent said they would instead benefit, according to data complied by Shanghai-based Everbright Securities.
