An­a­lysts fore­see in­dexes end­ing 2017 in pos­i­tive ter­ri­tory on MSCI, weaker prop­erty

China Daily (Hong Kong) - - BUSINESS - By WU YIYAO in Shang­hai wuyiyao@chi­nadaily.com.cn

China’s eq­uity mar­ket is ex­pected to im­prove in the se­cond half of this year as in­vestor sen­ti­ment is bright­en­ing in a largely sta­ble macroe­co­nomic en­vi­ron­ment, said an­a­lysts.

Growth mo­men­tum re­mains ro­bust as shown by the first-quar­ter GDP growth of 6.9 per­cent year-on-year, the strongest quar­terly real growth since the third quar­ter of 2015.

The bench­mark Shang­hai Com­pos­ite In­dex be­gan the year at 3,158 points and ended at 3,192 on June 30, the last trad­ing day in the year’s first half.

An­a­lysts said the SCI is likely to end the year around 3,400, im­ply­ing a 7.6 per­cent rise for this year.

Sim­i­larly, sec­toral in­dexes such as those for pub­lic util­i­ties, in­fra­struc­ture, con­sump­tion and health­care are ex­pected to gain in the range of 5 to 12 per­cent this year.

Even other key eq­uity mar­kets such as Shen­zen and Hong Kong are ex­pected to rise in the range of 3 to 7 per­cent this year.

Such a rise is ex­pected as the fun­da­men­tals of China’s econ­omy are pos­i­tive for long-term growth, which sup­ports in­vestor sen­ti­ment in the mar­ket, an­a­lysts said.

Also, the in­clu­sion of Chi­nese A shares in the MSCI Emerg­ing Mar­kets In­dex marks another mile­stone in the in­ter­na­tion­al­iza­tion of Chi­nese eq­ui­ties, they said.

Ma Lei, Chi­nese eq­ui­ties port­fo­lio man­ager at Fi­delity In­ter­na­tional, said the coun­try’s cap­i­tal mar­ket will be­come more at­trac­tive for global as­set man­agers and there will be more in­vest­ments in China’s on­shore mar­ket.

In the long term, in­nova-

Bright prospects await com­pa­nies with out­stand­ing in­no­va­tive ca­pa­bil­i­ties and prod­ucts ...” Ma Lei, Chi­nese eq­ui­ties man­ager at Fi­delity Intl

tion will drive growth in all sec­tors, in­clud­ing fast-mov­ing con­sumer goods and tex­tiles, as against the cur­rent view that it is re­lated only to high-tech, in­dus­trial and sci­en­tific re­search, he said.

FMCG and tex­tiles have so far re­lied heav­ily on mar­ket­ing and brand­ing, he said. “To­day, if a cloth­ing com­pany in­vents a high-per­for­mance fab­ric, such a break­through would likely be the re­sult of in­no­va­tion. Such a com­pany’s val­u­a­tion will grow fast. Bright prospects await com­pa­nies with out­stand­ing in­no­va­tive ca­pa­bil­i­ties and prod­ucts across con­sumer-re­lated sec­tors, ser­vices and in­dus­trial seg­ments, which will drive growth over the next decade,” said Ma.

Zhou Hao, se­nior econ­o­mist of emerg­ing mar­kets with Ger­man lender Com­merzbank, said that China is likely to see another prop­erty slow­down amid a cool­ing of the prop­erty mar­ket in the big cities and rental yields drop­ping to a low level.

China’s head­line growth has sta­bi­lized due to hous­ing in­vest­ment pick­ing up over the past few quar­ters. How­ever, the l ead­ing hous­ing in­vest­ment, and hous­ing prices, in­di­cate that the prop­erty sec­tor is likely to ex­pe­ri­ence a de­cel­er­a­tion in the se­cond half of this year.

“It’s ex­pected that cap­i­tal may flow from the prop­erty mar­ket to the eq­uity mar­ket,” said Wang Han­feng, an an­a­lyst with CICC, i n a re­search note.

China’s GDP growth is likely to moder­ate some­what in the com­ing quar­ters due to the prop­erty slow­down, but growth is still ex­pected to be 6.5 per­cent or above, said Zhou.

“For the re­main­der of this year, we would ex­pect to see two large pol­icy changes in China: a fo­cus on the real econ­omy and fur­ther merg- ers in State-owned en­ter­prises,” said Zhou.

Delever­ag­ing is also a fac­tor that needs to be taken into con­sid­er­a­tion, other an­a­lysts said.

“This year is to China’s shadow bank­ing reg­u­la­tion what 2014 was to China’s lo­cal gov­ern­ment fi­nanc­ing ve­hi­cles reg­u­la­tion. We an­tic­i­pate a moder­ate de­cline in the pre­vail­ing yields and re­as­sured fund­ing for in­fra­struc­ture projects in the near term. We raised ex­po­sure to banks and in­fra­struc­ture prox­ies, and cut cash lev­els from 3 per­cent to zero,” said Wendy Liu, chief China strate­gist at No­mura Se­cu­ri­ties.

Up­grad­ing of man­u­fac­tur­ing and con­sump­tion will have an ob­vi­ous im­pact on the eq­uity mar­ket, with en­ter­prises’ prof­itabil­ity ex­pected to rise soon, thanks to ris­ing in­comes of peo­ple, drop in com­mod­ity prices and tax cuts, said Wang of CICC.

es­ti­mated rise in the Shang­hai Com­pos­ite In­dex this year

Fifty-seven Chi­nese bro­ker­ages’ in­come from un­der­writ­ing has in­creased 70 per­cent yearon-year to 9.82 bil­lion yuan ($1.44 bil­lion) in the first half of this year, thanks to the surge in IPOs, ac­cord­ing to Choice, a fi­nan­cial data plat­form of East Money In­for­ma­tion Co Ltd.

“In­come from un­der­writ­ing has grown greatly as the IPO ap­provals have in­creased in Shang­hai and Shen­zhen,” said an in­sider at a well-known bro­ker­age who sought anonymity.

In the first half of last year, only eight bro­ker­ages’ un­der­writ­ing fees ex­ceeded 100 mil­lion yuan. Their num­ber has in­creased to 22 this year, ac­cord­ing to Choice.

SU YANG / FOR CHINA DAILY

In­vestors check out stock quotes at a bro­ker­age in Nan­jing, Jiangsu prov­ince.

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