China Daily

Booming A-share market expected to throttle back

- By EVELYN YU in Hong Kong evelyn@chinadaily­hk.com

The A-share market in the Chinese mailand is expected to pull back in the fourth quarter of this year after growth momentum peaked in the first half of the year, UBS Securities said.

The investment firm bet on reform-related sectors, including State-owned enterprise­s (SOEs), flagship businesses in heavy industries and green stocks that align with the country’s structural reforms.

Bolstered by strong economic fundamenta­ls, the mainland’s blue-chip CSI 300 Index has risen from a level slightly above 3,300 in May to 3829.87 at the close of trade on Thursday.

The 3,341 listed companies on the two major exchanges in Shanghai and Shenzhen reported combined revenue of 18.12 trillion yuan ($2.75 trillion), up 24.1 percent year-onyear, according to financial data provider eastmoney.com.

Despite slowing investment, especially in real-estate, UBS Securities chief China strategist Gao Ting said strong growth in exports and improved domestic performanc­e have sent the A-share market to new highs in the first eight months of the year.

The National Bureau of Statistics said export values rose 11.3 percent in June, a significan­t recovery from the 6.1 percent decline in December last year. Retail sales of consumer goods rose 10.4 percent in July.

Looking ahead, UBS is less sanguine about prospects as improvemen­t in economic fundamenta­ls was well priced in during the first three quarters of the year.

The investment bank forecast the CSI 300 Index would stand at 3,750 at the end of this year. The high growth rate of corporate earnings is also expected to moderate. UBS predicts earnings of listed companies will grow a mild 5 percent in the fourth quarter and maintains a full-year growth prediction of 12 percent.

Investor preference­s will shift from blue chips to reformrela­ted stocks, Gao noted. UBS also stated the government’s advocacy of SOEs’ mixed-ownership reform, trimming of overcapaci­ty in heavy industry and incrementa­l efforts in environmen­t protection are making related stocks new investment hot spots.

Earlier last month, China United Network Communicat­ion Group Ltd, the country’s second-largest mobile network operator, announced a mixedowner­ship reform plan. Mainland internet giants Alibaba Group Holding Ltd, Baidu Inc, Tencent Holdings Ltd and JD.com Inc will take stakes in the Hong Kong listed SOE.

“The mixed ownership reform of China Unicom is a good start and rolling out the blueprint for other SOEs. I think the reform would expedite and investors will have increasing interests in SOEs experiment­ing with such reforms,” Gao said.

In terms of the outlook for the renminbi, Gao thinks the recent wave of appreciati­on is mainly due to the weakening of the US dollar rather than the strong momentum of the yuan.

The yuan strengthen­ed and breached the psychologi­cally important 6.60 per dollar level at the end of last month — the first time at that level since June last year.

“The introducti­on of countercyc­lical factor in exchangera­te reform has set the yuan against a basket of major currencies. We estimate the exchange rate of the yuan against the US dollar will remain below 6.80 this year,” Gao said.

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