INVESTORS EYE A GOOD YEAR

Equity hounds sniff profit opportunities as economic restructuring, earnings and growth prospects, tamed credit risks and an evolving capital market raise expectations for 2018

Until mid November, the Chinese stock market has been rising steadily this year. But the roughly 4 percent retreat in less than a month since then, dubbed a “correction” by market mavens, rattled some investors nevertheless. Their main worry: Is the equity market in the world’s second-largest economy running out of steam?

At least some sections of the market believe such concerns are not completely unfounded. Investors tended to book profits this month in certain large-cap stocks that appeared to be expensive, having surged of late.

The ongoing deleveraging efforts by the government to rein in runaway corporate debt, coupled with resolute regulatory crackdown on risky financing, sparked worries about potential liquidity constraints.

In addition, the drastic US tax cuts and expected interest rate hikes by the Fed could also exert greater pressure on asset prices in emerging markets, including China, some analysts said.

Given this set of factors, any profit-taking by way of yearend pruning of holdings of A shares would appear justified, they said.

But a step back here would help offer a longer-term perspective, the big-picture view, if you will. And that overview seems to suggest there is no dire need for anyone to press the panic button.

The general consensus among equity analysts, international investors and asset managers is that the new year would not see any Chinese marketocalypse, to coin a word. A cautiously optimistic approach is all that is needed, they aver.

That’s because some bluechip stocks surged this year. For instance, shares of liquor giant China Kweichow Moutai soared as much as 150 percent this year until the recent price fall. But, overall, the A-share market still looks healthier than what it was in the summer of 2015, which saw a dramatic rout, said Chen Jiahe, chief strategist at Cinda Securities Co Ltd.

“There has been less price distortion in the market,” Chen said. “When small-cap stocks become much more expensive than the big blue chips, you begin to worry about bubbles. But this year, the market has been led by the good performance of large-cap stocks with solid fundamentals, allowing rational value-investors to make money.

“The speculative mood has also weakened because of the tighter regulation to curb risky investment as well as less enthusiasm from momand-pop investors.”

The opening of the Central Economic Work Conference this week in Beijing will likely boost investors’ sentiment as curbing financial risks and strengthening regulation will likely continue to be on the agenda of the meeting, which will set the tone for the country’s economic policies in 2018.

Looking into next year and beyond, analysts said the resilience of the Chinese economy, the earnings prospects of Chinese companies, and the government’s ability to manage growth deceleration and credit risks will mean the country will continue to offer opportunities for investors.

“When we talk about the China opportunity, first and foremost we are interested in how the Chinese economy develops. We really care about whether China succeeds in having this moderate growth path and a change of economic composition toward more consumption,” said Rick Lacaille, global chief investment officer at State Street Global Advisors.

In the investment firm’s view, the markets are overstating debt fears and underestimating China’s growth prospects, which may provide a window in 2018 for investors to gain long-term strategic exposure.

Gao Ting, head of China strategy at UBS Securities, said in a research note that the recent market pullback will likely be short-lived, noting that earnings growth estimates for 2018, and the current market valuations, suggest further upside for

The market has been led by ... large-cap stocks with solid fundamentals, allowing rational value investors to make money.”

Chen Jiahe,

What are people enthusiastic about in China? A glance at smartphone screens of subway commuters could be a good starting point to find out.

You’ll likely find people playing King of Glory, the megahit mobile game developed by internet firm Tencent; or, they might be watching popular TV series or browsing e-commerce sites.

If you rewind your mind’s tape to, say, mid-2015, screens back then featured red and green candlestick charts. It was the summer of 2015, when China’s stock market kept scaling new heights. And then, the market peaked out and plunged dramatically. They called it the Summer Rout of 2015.

The change in smartphone screen content appears to reflect diminishing public enthusiasm for stock trading in China. And that is not necessarily a bad sign. Let me explain.

With the fear and shock of the rout still fresh in mind, many mom-and-pop investors appear to have lost interest in the A shares, China’s key stocks.

But the lack of enthusiasm could also be a sign that speculative trading, which had bedevilled the Chinese stock market in the run-up to the rout, has subsided, with fewer retail investors chasing market whims and fads instead of trading sensibly.

When the market cools down, prices are more accurate and value stocks with solid fundamentals tend to find more favor from rational investors.

It has made stock analysts and professional traders more comfortable with the market outlook for next year as many of them believe that if there had not been any rapid surge this year, or “irrational exuberance”, to borrow an Alan Greenspan phrase, then a crash in 2018 could well be unlikely.

The benchmark Shanghai Composite Index has recov-