Slow bull likely to continue for A shares

Despite headwinds in global markets due to escalated geopolitical tensions and the resulting disruptions to supply chains, foreign investors still hold a positive outlook on Chinese equities thanks to the country's unswerving efforts on technology advances and economic stimuli.

In a report released on Tuesday, Kinger Lau, chief China equity strategist for Goldman Sachs, remains overweight on A shares and Hong Kong shares while international investors' nerves are being shaken by the geopolitical tensions in the Middle East and energy price volatility.

Weighed down by weaker software and internet sectors, the MSCI China Index — widely tracked by global investors — has shed 12 percent from its peak in late January. On the other hand, the CSI 300, which monitors 300 A-share heavyweights, has remained stable so far this year, said Goldman Sachs.

In January, Lau and his team said that the MSCI China Index and the CSI 300 are expected to rise 20 percent and 12 percent, respectively, this year, mainly driven by higher corporate profitability. Lau added that A shares have demonstrated better risk-adjusted returns, but he also suggested investors focus more on structural themes for greater profits before any alleviation of the global geopolitical risks, or concerns over artificial intelligence disruption.

Meng Lei, China equity strategist at UBS Securities, said that A-share companies' average profitability growth is expected to reach 8 percent in 2026, helping to promote an overall slow bull.

From the mid-term perspective, the A-share market's slow bull is further stabilized by China's incremental macroeconomic policies, the lowered risk-free interest rates, the steady direction of household savings to the stock market, listed companies' improving market valuation and the continued long-term capital inflow, Meng said.

Janice Hu, China country head of UBS, said Chinese assets are transitioning from a "portfolio option" to a "strategic necessity".

This stems from international investors' understanding being reshaped by China's innovative vitality in the areas of AI, high-end manufacturing, semiconductors and new energy, Hu said.

Experts from the world's largest asset manager BlackRock expressed their confidence after the release of China's Government Work Report. The economic growth target for this year set at 4.5 to 5 percent indicates a continued economic recovery, which can be translated into abundant investment opportunities. As the government has stressed better coordinating existing and incremental policies, investors' confidence can be further boosted.

Specifically, investors can look for opportunities in future-oriented industries such as embodied intelligence, brain-computer interface and 6G, as they have all been underscored in the Government Work Report. The government incentives to boost consumption will help further stimulate domestic demand, they said.

Meanwhile, the Chinese government has aimed to reduce carbon dioxide emissions per unit of GDP by 3.8 percent this year. This creates vast room for growth along the new energy industry chain, including hydrogen, green fuels, new power systems and the clean utilization of fossil energy. As two-way opening-up is also emphasized, there are imminent investment opportunities among outbound companies specializing in power equipment, new energy, machinery, innovative drugs and new consumption, they added.

James Sun, general manager of Fidelity International, said A-share companies' resilience has risen amid China's economic transformation. Moving up the value chain, Chinese companies are reaching overseas markets by exporting more technologies, culture and eventually business models.

But overseas capital still has insufficient exposure to Chinese assets at present, mainly because they have not fully understood the difference of the quality of Chinese assets and business models. But as China continues economic upgrading and deepens capital market reform, this is very likely to change, affecting foreign investors' portfolios and valuation systems, he said.

shijing@chinadaily.com.cn