Investor confidence has taken a knock following the sudden and huge selloff on global stock markets this month.
Looking ahead, there is reason for caution, but that doesn’t mean that one should overlook several positive factors, including good export trade data from China, that could support equity valuations.
The Purchasing Managers’ Index (PMI) of manufacturing sector in the US, euro zone and Japan stood at 59.1, 59.6 and 54.8 points respectively in January. China, meanwhile, reported a 11.1 percent jump in exports last month.
Stable foreign demand has underpinned robust growth of Chinese exports.
That said, weaker yuan helped boost the exports last year. But as Chinese unit kept strengthening recently against the dollar, such benefit would disappear this year.
China’s A shares should be stable given that the nation’s macro economy maintains steady and healthy growth. However, stocks fell in recent sessions amid the global market sell-off.
Chinese authorities would keep a neutral monetary policy before the Lunar New Year Holiday in order to ensure orderly and stable capital market.
The market focus is likely to return to the annual “Two Sessions” after the holiday break.
Investors should pay some attention to the latest No. 1 Central Document, which refers to the first policy statement of the year released by the central authorities.
The document has emphasized the national strategy of rural vitalization. And authorities have vowed to narrow the wealth gap between urban and rural areas and diversify the economic structure of rural regions.
Given this, there will be more investment opportunities in the agriculture sector.
China’s A shares still have low valuations compared with other markets, and the leverage ratio remains at reasonable level. The fundamentals remain supportive amid stable economic growth and ample market liquidity.
Eventually, the negative impact from overseas markets may abate.
The full article appeared in the Hong Kong Economic Journal on Feb 12
Translation by Julie Zhu
[Chinese version 中文版]
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