Chinese stocks: Where should you place your bets now?

April 30, 2015 18:15
China's efforts to make the rich do more of their shopping at home will benefit high-end malls and firms that sell imported goods. Photo: Bloomberg

Listed firms usually issue statements to clarify rumors or other matters following steep share price falls. Thus, it was quite out of the ordinary to see Sinopec Shanghai Petrochemical Co. (600688.CN) making a filing this week following a dramatic price rally.

Sinopec Shanghai saw its shares surge over 30 percent this week after limit-up gains on many days.

The run-up came amid speculation over potential consolidation moves in the oil sector. In order to cool off market expectations, the company issued a statement saying that is unaware of any reason for the stock rally.

It said there won't be any major event like asset consolidation or share issuance for at least the next three months.

The statement, however, failed to curb the speculative fervor in the market, and investors continued to pile into the stock.

Meanwhile, some brokerages have also tried to cool down the broader market.

Citic Securities (600030.CN) said it has overhauled margin trading and short selling for as many as 658 stocks, including CSR Corp. (601766.CN), China CNR Corp. (601299.CN) and China Railway Construction (601186.CN). 

The move is aimed at controlling risk and protecting investors, the brokerage said.

Such actions indicate that concerns are growing about market risks following the sharp gains in equity prices in recent months.

CSR Corp and CNR Corp shares surged over 3 percent on Wednesday, while other infrastructure plays have seen some corrections.

Infrastructure stocks have outperformed for some time due to the "One Belt One Road" theme, while consumer plays have lagged behind.

China's total sales of social consumer goods increased 10.56 percent in the first quarter, the lowest growth rate in recent years. It is widely expected that the market run-up in recent weeks reflects Beijing's aim to lift consumption through wealth creation in the equity market.

The State Council has released a set of measures to stimulate domestic consumption. The government plans to reduce the tariff for imported daily consumer goods from late June.

It will optimize the consumption tax for mass-market consumer goods like garments and cosmetics, and will also set up more duty-free store on the border and offer more convenience for consumers to buy foreign products.

Chinese customers have spent billions of dollars overseas, which has not benefited any domestic consumer companies. Therefore, authorities have to take steps to attract these consumers to spend at home.

These measures will benefit high-end shopping malls and companies that sell imported goods.

China International Travel Service (601888.CN) will benefit the most as the exclusive operator of the nation's first duty-free shops. However, trading in the stock has suspended since March 31 due to a major share transfer deal.

A number of consumer plays also look attractive, including Shanghai Yuyuan Tourist Mart (600655.CN), Changchun Eurasia Group (600697.CN) and Yinchuan Xinhua Commercial Group (600785.CN).

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

Translation by Julie Zhu

[Chinese version中文版]

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a columnist at the Hong Kong Economic Journal