Shanghai Daily

Resilient Shanghai stocks: a safe haven? Alliance to give tailored investment­s and advice

- Huang Yixuan Ding Yining

Shanghai stocks, led by health care-related shares, have weathered the COVID-19 pandemic better than expected — a performanc­e largely credited to the government’s rapid response to the outbreak.

To be sure, there have been hiccups. The benchmark Shanghai Composite Index, which covers both Class A and B shares, posted a 4.5 percent decline for March, though it gained almost 1 percent in the last five trading days of the month.

By comparison, New York’s Dow Jones Index tumbled 13.7 percent in March, the Nikkei in Japan fell 10.5 percent, and Hong Kong’s Hang Seng slid 9.7 percent.

Even in China, the Shanghai markets outperform­ed sister bourses. The Shenzhen Component Index lost 9.3 percent in March, and the Nasdaq-style ChiNext Composite Index retreated 9.6 percent.

Year to date, the Shanghai index has dropped only 9.1 percent, compared with declines of between 20 percent and 30 percent in US, Japanese, German and French stock markets.

So are Shanghai’s Class A shares the global “safe haven” that some have touted?

“Whether A-shares can continue to be relatively independen­t of overseas markets in the future and truly become a safe haven for foreign investors depends on the performanc­e of China’s economic fundamenta­ls,” said Zhu Qibing, chief macro-economist at BOC Internatio­nal China.

China has been lauded for its quick and effective anti-epidemic response. Economic measures have been implemente­d to provide ample wiggle room for policymaki­ng, Zhu said, and the economy has greater scope to maneuver in dealing with external shocks.

“All these decisions highlight the resilience of the country’s economic growth and can help unleash the potential of A-shares,” he added.

It comes as no surprise that Chinese companies involved in health-care industries have fared the best during the coronaviru­s crisis. As a sector, they are up 18.1 percent this year. Zhejiang Orient Gene Biotech Co surged 212 percent on Shanghai’s STAR Market this year, while Shenzhen-listed Intco Medical Technology Co soared 170 percent.

Trailing not far behind are companies related to farming, forestry, animal husbandry and fishing — up by nearly 13 percent. Heilongjia­ng Agricultur­e Co jumped by 57.7 percent, and New Hope Liuhe Co, an animal feed company, advanced 56 percent.

Not all sectors have been so fortunate. With travel restricted, the sub-index for aviation stocks has plummeted 21.6 percent since the beginning of the year. Juneyao Airlines Co has fallen 34.4 percent, while Air China shares declined 30.8 percent. Insurers, including China Pacific Insurance Group Co and China Life Insurance Co, have slumped 20.5 percent as a group. The banking sector, including PingAn Bank and Bank of Ningbo, has lost about 16 percent.

On an individual company basis, the best two performing stocks this year are Starpower Semiconduc­tor and Fuzhou Rockchip Electronic­s Co, up 903 percent and 493.8 percent, respective­ly. The worst performing duo are Jiangsu Boxin Investing & Holdings Co and Beijing Xinwei Technology Group, which was the subject of negative press stories last year.

Many individual investors, already stung by the lifestyle changes wrought by the virus, are wary about investing in stocks.

Zhu Yao, 47, said he sold half his stock portfolio and transferre­d his assets to more stable investment­s like gold and bonds.

Min Yazhou, a 29-year-old entreprene­ur, isn’t quite so pessimisti­c. He said there are buying opportunit­ies amid the crisis, particular­ly in undervalue­d stocks with developmen­t potential, such as companies related to new infrastruc­ture.

Yang Liu, an analyst with Minsheng Securities, said the short-term effects of COVID19 have boosted demand for household necessitie­s and home entertainm­ent, while hitting offline retailers and manufactur­ing.

She predicted infrastruc­ture developmen­t companies may benefit in coming months from government policy support, while industrial chain globalizat­ion and export-oriented industries are likely to suffer.

Yang cited the case of consumer electronic­s and semiconduc­tors, sectors related to industrial chain globalizat­ion. Companies in that realm face risks of upstream supply chain shortages and weak global demand in the next two quarters, she said.

CITIC Securities is predicting that the A-share market will likely bottom out this month.

“China had led other countries in controllin­g the epidemic, and China’s economic activity is likely to take the lead in the recovery, with growth mainly driven by domestic demand,” said Qin Peijing, chief strategist of CITIC Securities.

“Chinese stocks and fixedincom­e assets,” he noted, “will become more attractive relative to assets of developed countries and will be the first choice in the process of global capital reallocati­on.”

Market rally?

Qin said A-shares could kick-start a market rally in the second quarter, with government fiscal stimulus as a catalyst. Technology leaders in realms such as 5G phones, cloud computing and Internet data will remain a major investment theme for the rest of the year, he added.

What stocks to buy? Qin said he particular­ly likes companies that benefit from domesticdr­iven demand and companies that don’t rely heavily on either overseas revenue or upstream material supply chains.

Even amid the coronaviru­s pandemic, the Shanghai stock markets have been welcoming new listings. Initial public offerings hit a new peak in the first quarter, when 34 companies raised an aggregate US$9.8 billion on Shanghai’s main board and new STAR Market, according to data from the Shanghai Stock Exchange. That surpassed new listings on New York’s Nasdaq, where 17 companies raised US$5.13 billion in first-quarter IPOs, according to Refinitiv, a global provider of financial markets data and infrastruc­ture.

“I’m not surprised,” said Zhu Ning, associate dean of the Shanghai Advanced Institute of Finance. “There are a huge number of startups in China, and Chinese companies are increasing­ly inclined to list on domestic markets that have higher valuations.”

The strong performanc­e of the IPO market this year is partly due to the 30.7-billionyua­n (US$4.32 billion) January share sale by Beijing-Shanghai High Speed Railway, the biggest first-quarter deal globally.

Most of the 34 IPOs in the first quarter were related to technology companies and industrial firms, followed by the medical sector. All 34 are now trading above their initial offer prices.

EY, a multinatio­nal profession­al services firm, said it expects the IPO market in China to flourish, underpinne­d by the recent implementa­tion of the new Securities Law and reforms to the ChiNext market. New listings can now proceed via a registrati­on system without undue regulatory controls that formerly choked the process.

“COVID-19 has created business opportunit­ies that are likely to continue once the outbreak is under control, particular­ly in the health-care sector,” said Ringo Choi, EY’s Asia-Pacific leader for IPOs.

Terence Ho, EY’s China IPO leader, said he is “cautiously optimistic” about the economy and IPO prospects for the rest of 2020.”

“The Chinese government has already rolled out timely policies to help companies, with more economic stimulus on the way,” he said. “These efforts should help once the outbreak is controlled.”

ALIBABA affiliate Ant Financial has launched an asset management service in collaborat­ion with US-based asset management firm Vanguard Group to meet investment demands from retail consumers.

The service was officially rolled out yesterday through Ant Financial’s smartphone financial service applicatio­n Alipay, which has some 900 million users.

The automated advisory will allow individual­s who make an initial investment of 800 yuan (US$113) to purchase a portfolio with a daily charge of about 0.14 yuan for every 100 yuan they invest, according to a joint statement.

Users will get tailor-made investment suggestion­s and portfolios from a pool of around 6,000 mutual funds by more than 100 domestic asset firms.

The mutual-fund recommenda­tions are offered by a 51-49 joint venture between Ant Financial and Vanguard Group set up in Shanghai last year, which combines Ant’s data analyzing and Vanguard’s investment modeling expertise.

The service’s “Help You Invest” function is based on Ant Financial’s analysis of each user’s personal consumptio­n habits, existing payment and wealth management data and risk preference­s.

Users will be informed of estimated investment returns, covering worst to best case scenarios, and the advisory service will also adjust its portfolio through investment modeling. Financial market informatio­n and other wealth management related content will also be available.

Investors, however, are still cautious about committing too much in mutual funds right now following several weeks of volatile performanc­e of global financial markets.

“I don’t want to risk losing any more after the stock market turmoil in the past two months and maybe fixed return wealth management products are a better option for the time being,” said Shanghai business consultant Sherry Hu.

Ant Financial’s wealth management platform has been seeking to lower the investment threshold for users who come to the app for mobile payment service.

It’s working with fund companies and commercial banks to provide a wide range of investment­s that are easier to access than security brokerages or bank’s own investment sites.

Newspapers in English

Newspapers from China