24 October 2016
China's stock markets are showing signs of stability after witnessing huge ups and downs during the past year. Photo: CNSA
China's stock markets are showing signs of stability after witnessing huge ups and downs during the past year. Photo: CNSA

Why we can be optimistic about China market outlook

The Shanghai stock market’s benchmark index gained 0.73 percent on Monday, closing at 3,606 points. Security services and robotics-related firms were the best performers on the day.

Although there was a decline in the overall transaction volume, the market did better than expected as some speculators as well as bargain-hunters rushed in.

To encourage the upgrade of the industrial sector, and to realize the “Made in China 2025″ goal, Beijing will host the 2015 World Robotic Conference next week.

As the initiative will be supported by the Ministry of Industry and Information Technology and other authorities, speculators rushed to buy related stocks, driving up the share prices of several firms.

Among the big gainers, Baotou Beifang Chuangye Co. (600967.CN) surged its 10 percent daily limit and Shanghai Mechanical & Electrical Industry (600835.CN) was up over 9 percent.

Although high-end manufacturing and robotics are among the businesses being offered government incentives, most of the listed firms in the sector are on the Shenzhen bourse.

With very few of those firms listed in Shanghai, it has become difficult for foreign investors to tap into the sector through the Shanghai-Hong Kong Stock Connect scheme.

Among the few exceptions is Changyuan Group (600525.CN), which recently finalized an acquisition deal that will help it to expand into electric vehicles sector.

Coming to the Stock Connect scheme, it is now a year since the program has been in place.

The better performance of A-share market earlier this year was only partly due to the Stock Connect program.

In the past year, a total of about 120 billion yuan went into the mainland market via the cross-border trading program, accounting for only about 40 percent of the quota.

Compare that with the China market’s daily transaction volume of nearly one trillion yuan in recent days, the amount counts for almost nothing. But the positive signal that the stock Connect brings does matter.

Although a new Shenzhen-Hong Kong Stock Connect scheme is unlikely to be launched before the first quarter next year, the opening up of the mainland capital market and the internationalization of the renminbi are the big trends now.

More international investors will enter the mainland stock market soon and the outlook for the market will be positive overall.

Chinese investors have learnt their lesson after the recent market turmoil. The market is stabilizing now and setting the stage for a potential fresh uptrend.

To support the recovery, the government should launch more stimulus measures to shore up economic and corporate fundamentals.

This article appeared in the Hong Kong Economic Journal on Nov. 17.

Translation by Myssie You

[Chinese version中文版]

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a columnist at the Hong Kong Economic Journal

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