16 October 2018
Investors can consider buying mainland insurers and real estate companies. Photo: Reuters
Investors can consider buying mainland insurers and real estate companies. Photo: Reuters

Good opportunity to invest in insurers, developers

The stock market’s response to China’s latest economic data, particularly the 6.9 percent GDP growth in the third quarter, indicates that the market has begun to accept the “new normal”.

Although fixed asset investments and export data are weak, the service sector performed well.

In the first three quarters, the service industry accounted for 51.4 percent of the GDP, up 2.3 percentage points from a year ago. Consumption spending contributed 58.4 percent of the GDP growth, a record high level.

Data shows that the previous stock market turmoil hasn’t really made an impact on the people’s consumption power and the change in economic structure is running in the right direction.

Many had been overly concerned about China’s economic issues.

But the property market, a pillar of the Chinese economy, has begun to rebound — both home prices and transaction volumes have been on the rise.

In addition, authorities are launching market-oriented stimulus measures to ensure smooth economic growth.

Recently, the National Reform and Development Commission has stepped up the approval of new railway plans, among other infrastructure projects.

In September, the government announced tax incentives for the purchase of passenger vehicles.

The down payment for first-home buyers was cut in most cities, including the top-tier ones.

We believe China can successfully implement the stimulus measures and achieve its growth target of at least 6.5 percent this year.

The expected inclusion of the renminbi in the International Monetary Fund’s special drawing rights basket will help stabilize the currency’s exchange rate and stabilize capital flows.

As of the end of August, China’s foreign reserves were above US$3.5 trillion. It is enough to keep the exchange rate stable.

We also believe the central bank will eventually open its financial account as financial reforms continue.

After the stock market crash in the third quarter, Chinese companies are oversold, especially in the case of H shares.

The valuation of H shares is very low, even below their level during 2008 financial crisis. It’s a good opportunity to invest.

Aside from stocks related to the reform of state-owned enterprises, investors can consider buying mainland insurers and real estate companies.

This article appeared in the Hong Kong Economic Journal on Oct. 28.

Translation by Myssie You

[Chinese version中文版]

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Managing director of retail division at Value Partner

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