21 October 2016
Weak trade data is expected to prompt Beijing to step up support for the manufacturing and related sectors. Photo: Bloomberg
Weak trade data is expected to prompt Beijing to step up support for the manufacturing and related sectors. Photo: Bloomberg

Why infrastructure, logistics plays remain top picks

Chinese stocks gained 2.2 percent last week amid hopes that a group of state-owned financial institutions — the so-called national team — will step up support for domestic equities.

After disappointing economic data over the weekend, Beijing is likely to focus more on bolstering the real economy.

The market may have bottomed out already, but investor confidence still needs to be restored.

China’s overseas trade dropped 8.8 percent to 2.12 trillion yuan in July from a year ago. Exports fell by 8.9 percent to 1.19 trillion yuan last month, while imports were down 8.6 percent to 930.2 billion yuan.

The trade data has failed to improve, and the degree of fall was disappointing. The figures reflect weak external demand, which is set to put pressure on the mainland manufacturing sector.

Meanwhile, domestic consumption is also sluggish. The consumer price index rose 1.6 percent in July from the previous year. That was mainly due to a supply crunch in pork, which led to a 2.7 percent rise in food prices.

Also, the producer price index fell 5.4 percent year on year last month, and was down 0.7 percentage point from the month before. The continued fall in producer price index raises alarm over real economic growth.

Nevertheless, poor economic data may not be all bad news for the stock market. The government still has great leeway in relaxing the monetary policy given that the CPI remains at fairly low level. And central authorities could take measures to boost economic growth in the second half.

In fact, China’s economy is currently undergoing a painful stage of economic restructuring. Beijing has yet to locate a new growth engine, and therefore has to rely on reform and infrastructure to keep the growth momentum.

State-owned enterprise (SOE) reform is another hot topic. Following the merger of China CNR Corp. and CSR Corp., China Ocean Shipping Group (Cosco) and China Shipping Group are planning a merger. A joint reform team is envisaged at the group level.

As a result, six listed units of these two SOE groups, China COSCO Holdings (601919.CN), COSCO Shipping (600428.CN), China Shipping Container Lines (601866.CN), China Shipping Development (600026.CN), China Shipping Haisheng (600896.CN), and China Shipping Network Technology (002401.CN) all saw their share prices touch the daily up-limit on August 7. Five firms suspended trading after market close.

The rumor has also boosted all shipping stocks. Xiamen Port Development (000905.CN), Rizhao Port (600017.CN), Jinzhou Port (600190.CN) and Tianjin Port (600717.CN) all posted gains of 3 to 7 percent on August 7.

However, investor confidence remains quite sluggish and will take some time to recover. The market turnover of Shanghai and Shenzhen has fallen below 1 trillion yuan, standing at just 900 billion yuan on August 7.

This article appeared in the Hong Kong Economic Journal on Aug 10.

Translation by Julie Zhu

[Chinese version中文版]

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a columnist at the Hong Kong Economic Journal

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