SOE reform leads to rising stock prices

In the first quarter of 2017, deepened reforms are creating opportunities for investors. And, the deleveraged capital market with better regulation and fewer risks will benefit sectors with solid fundamentals, said an analyst.

Policy makers have prudently focused on deleveraging the market and have tightened control over “suspicious capital flows” in order to better regulate foreign exchange remittances and purchases.

They have also further clarified on investments allowed by insurance funds and have cooled down real estate investment in cities with overheated housing markets.

“All of these factors lower investors’ risk preferences and encourage them to take a stable approach with more patience,” said a research note from Haitong Securities.

“Investors can look at sectors with more certain prospects, such as State-owned enterprises that benefited from institutional reforms, companies helped by the Belt and Road Initiative, and those with improved profits driven by consumption growth. Investors may become more bullish when uncertainties about policies are cleared in the second quarter or later,” the note said.

Although economic growth has slowed at the macro level, certain companies at the micro level have been recovering and thriving. A deleveraged market with fewer risks, more transparency and higher standards

China stocks started the week on a firm note, led by defense stocks, as more central State-owned enterprises (SOEs) mulled plans to push mixed-ownership reforms. The blue-chip CSI300 index rose 0.5 percent onMonday to 3,363.90 points. The Shanghai Composite Index also added 0.5 percent, to 3,171.24 points.

State-owned enterprises reform has been a driver in recent weeks, as China vowed to push forward mixed-ownership reforms in key sectors, Investors read stock information at a brokerage in Fuyang, Anhui province, on Jan 3.

Haitong Securities note

of compliance brings overall benefits to the A-share market, said economists.

Corrections in share prices in the past few months have brought “buy in” opportunities to investors, particularly in shares of companies with improved profitability driven by supply-side reforms.

These sectors, including agriculture, foods and beverages, public utilities, resources, banking and precious metals, are less impacted by inflation, interest rates and macro environment. They have been supported by strong fundamentals and demand, said Ren Zeping, macro economist with Founder Securities.

Agriculture and foods and beverages usually perform well in the first quarter of a year, due to surging seasonal consumption around New Year and China’s Lunar New Year.

In the first three quarters of 2016, consumption contributed more than 70 percent of overall economic growth. The number could be even higher when the fourth-quarter results come out, showing that consumption has become a major pillar of China’s macro economic growth.

Consumption will become even more dominant in 2017, according to a research note from China Galaxy Securities.

“Companies with core business in ecosystem optimization, large-scale production, seeding, feeding and reproduction technologies, and including aviation, defense, oil and telecommunications.

China South Industries Group Corporation has made preliminary proposals regarding mixed-ownership reforms in defense enterprises and will launch trial stock ownership plans in its listed subsidiary Chongqing Changan Automobile, Shanghai SecuritiesNews reported.

Anindex tracking aerospace defense industry advanced 3.3 percent, notching its biggest daily percentage gain in five months.

The market was also boosted by news that China was expected to have had 6.7 economic growth in 2016, within a targeted range set earlier.

Most sectors gained ground, led by industry and utilities.

All of these factors lower investors’ risk preferences and encourage them to take a stable approach.” the proportion consumption contributed to overall economic growth in the first three quarters of 2016 the gain in the benchmark Shanghai Composite Index on Monday