Date
11 December 2017
Catherine Cheung of Citi is uncertain about the short-term outlook for the A share market but is upbeat about its long-term prospects. Photo: EJ Insight
Catherine Cheung of Citi is uncertain about the short-term outlook for the A share market but is upbeat about its long-term prospects. Photo: EJ Insight

Insurance sector top Citi pick in China equity market

The insurance sector will continue to be the top pick in China’s equity markets this year, the firms’ H shares being the best bets, Citibank said Monday.

“Besides the rally in the A share market, what’s more important is China is going to have more reform in the [insurance] sector,” said Catherine Cheung, head of investment strategy and research at Citibank global consumer banking.

The authorities are likely to roll out measures beneficial to the industry, such as tax rebates for those who have bought medical insurance, she said.

“We are upbeat on this sector, but we will advise people to pay attention to the H shares, as A shares have already gone up a lot … The value of H shares has not played out completely,” Cheung said.

The CSI 300 index (an index of A shares) ended 2014 with gains of nearly 52 percent, while the Hang Seng China Enterprise Index (the index of H shares) went up only 10 percent, she said.

Cheung said the A share market shot up too drastically in December, boosted by the Shanghai-Hong Kong Stock Connect program.

The scheme has helped bring in overseas investors, who mainly invest in large-cap stocks, to the A share market, in contrast to the mainland’s retail investors, who favor small-cap stocks, she said.

Cheung said the long-term outlook for the A share market is promising, as A shares may be included in the MSCI Emerging Markets Index in this year, which will help attract more institutional investors.

China is also likely to cut interest rates twice more, each time by 25 basis points (0.25 percentage point) in the first and second quarter, she said. This will also be favorable for the equity market.

Cheung said she is uncertain about the short-term prospects for the A share market, as adjustments may occur after the big rally in December.

For the Hong Kong market, she expects the Hang Seng Index to rise only slightly to 25,000 in 2015, mainly because corporate earnings may grow at just 4 percent, compared with between 7 percent and 8 percent last year. The index closed at 23,721 Monday.

The strong US dollar and the US Federal Reserve’s planned increase in interest rates this year may also constrain the performance of the Hong Kong stock market, Cheung said.

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JH/JP/FL

EJ Insight reporter

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