China’s stocks are poised for another period of strong growth as the central government is not likely to withdraw the massive liquidity it has injected into the market anytime soon, CIFM Asset Management (Hong Kong) Ltd. investment director Chang Shu-wan said.
Investors speculating on newly listed stocks may return, further supporting a market rally for the rest of the year, Chang told the Hong Kong Economic Journal.
Authorities have cracked down over-the-counter funding activities, and this has contributed to market stability.
Still, about 500 billion to 600 billion yuan (US$80.5 billion to US$96.7 billion) worth of highly leveraged investment products or “umbrella trusts” are invested in the stock markets.
Meanwhile, legitimate short-selling and margin financing might soon pick up, Chang said, adding that the volume of such activities could surge to 2 trillion yuan by the end of the year from 1.4 trillion yuan at present.
As the government is bent on bolstering the stocks markets, it is not likely to offload its capital before the Shanghai Composite Index reaches 5,000 points, she added.
Nonetheless, Chang believes that institutional investors will become more cautious in their stock picks, possibly turning to stocks with lower price-earnings ratios of 30 to 40 times, instead of up to 50 to 60 times.
Stocks related to regional development, such as those that have something to do with the One Belt, One Road plan, the Yangtze River economic region and the Beijing-Tianjin-Hebei national capital region, are likely to thrive, she said.
Chang said the launch of the Shenzhen-Hong Kong Stock Connect may be pushed back to November as the government is focused on reviving the mainland stock markets.
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