China’s A-share market is unlikely this year to scale the peaks of 2007 after the bull run in 2014, as fundamentals like GDP and earnings growth are much weaker now compared to the levels eight years ago, a Citigroup executive said on Tuesday.
“I don’t think the A-share market will be able to catch up to the 2007 peak,” said Ken Peng, investment strategist for Asia Pacific at Citi Private Bank.
“Back then we had 14 percent GDP growth and about 60 to 70 percent earnings [expansion], while right now GDP growth is halved and earnings about one-tenth” of the previous pace, he said.
He also noted that equities in 2007 were helped by “a raging global bull market” amid a liquidity boom.
There is not enough fundamental support now for the Shanghai Composite Index to reach the levels seen in 2007, when the benchmark hit an all-time high of 6,124 points, Peng added.
In Tuesday trading, the Shanghai market’s A-share index ended at about 3,390 points, up 0.18 percent from the previous day on the back of some positive economic data.
Although stocks won’t return to 2007 levels, Peng said he remains optimistic overall about the A-share market, as monetary easing and reforms will lead to more sustainable and higher quality growth for China.
“Right now we are in the stage of rotation, rotating from the cyclical stimulus driven sectors such as banks, property, industrials and materials towards the more structurally positive sectors such as tech, healthcare and consumer plays,” he said.
In other comments, he said that H-shares are likely to catch up with their A-share counterparts in the near term, given the fact that shares are now trading at a large premium in the mainland compared to the levels in Hong Kong.
Peng said China’s GDP growth this year is expected to be about 6.9 percent, with the moderation largely due to a slowdown in property investment. The Chinese government is likely to step up infrastructure investments if economic growth slows too much, he said.
The People’s Bank of China, meanwhile, is expected to cut both the benchmark interest rate and the bank reserve requirement ratio two more times, he said.
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