22 October 2016
China's support for high-tech and Internet-related firms will help boost the prospects of Shenzhen and its stock market. Photo: Bloomberg
China's support for high-tech and Internet-related firms will help boost the prospects of Shenzhen and its stock market. Photo: Bloomberg

Why Shenzhen market will gain more support from hi-tech plays

The fifth plenum of the Chinese Communist Party’s 18th Central Committee concluded on Thursday, with the key announcement being the abandonment of the decades-old one-child policy.

Apart from the relaxation of family planning laws, leaders also outlined fresh initiatives to help make China an internet power and implementing Internet Plus and Big Data strategies.

The two policy moves should give a boost to share prices of baby food plays and internet technology firms.

The CPC plenum has highlighted Internet Plus and Big Data strategies. As many firms related to those activities are listed on the Growth Enterprise Board in Shenzhen, the prospects for the Shenzhen bourse look good.

In recent weeks, the Shenzhen market has already shown signs of outperforming Shanghai.

The Shanghai Composite Index gained 10.96 percent so far this month, while the Shenzhen market jumped 15.8 percent.

On Thursday, the Shanghai market turnover edged up by 0.38 percent from the previous session, while turnover on the Shenzhen bourse was up 0.63 percent.

Apart from some tech plays, various other individual stocks were also chased by investors.

Shenzhen SEG Co. (00058.CN), Shenzhen Textile Holdings (000045.CN), Shenzhen Zhenye Group (000006.CN) and Shenzhen Properties & Resources Development Group (000011.CN) all hit the daily up-limit Thursday, while Shenzhen Special Economic Zone Real Estate & Properties Group Co (000029.CN) and Shenzhen Expressway (600548.CN) both surged more than 5 percent.

The Shenzhen market has managed to outperform thanks to government commitment to develop the hi-tech sector. Firms that are related to robotics and Internet Plus strategy are mostly listed in Shenzhen.

By contrast, SOE firms dominate the Shanghai stock exchange. As the SOE reform theme, which has supported the Shanghai market earlier, has run out of steam, investors should start switching to Shenzhen-listed stocks to ride the innovation theme.

Hong Kong investors may, however, have to wait for the Shenzhen-Hong Kong Stock Connect scheme for greater access to the Shenzhen market.

As they wait the new bourse link, the investors could meanwhile continue to dig into some attractive stocks in Shanghai.

Under the 13th Five-year Plan, authorities will focus on optimizing the state-owned assets management system. That should help Shanghai-listed SOEs plays to stage a comeback in the future.

Military stocks will be on the radar, among other sectors, under the SOE reform theme.

As investors expect more progress on civil and military integration, Aerosun Corp. (600501.CN) hit the daily up-limit on Thursday, while China Aerospace Times Electronics Co. (600879.CN) and China Spacesat Co. (600118.CN) both soared more than 4 percent.

People should bear in mind that liquidity is key to equity market direction, and that market ups and downs are not merely determined by speculation over various market themes.

There is around 400 billion yuan to 1.4 trillion yuan of capital that could potentially to flow into the secondary market in the future, according to some mainland brokerages.

With IPOs being frozen, there won’t be much capital drained through equity fund-raising, which should help provide support to the overall market.

This article appeared in the Hong Kong Economic Journal on Oct. 30.

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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