A-share market to hit new high in 2016, says CCB International

July 07, 2015 12:11
CCB International's Mark Jolley said China will continue to ease policies to maintain a strong equity market environment. Photo: HKEJ

Despite the selloff in the past three weeks, China's A-share market is not yet about to enter a bearish stage and is on track to reach a new high next year, thanks to the government's supportive policies, CCB International Securities said.

The benchmark Hang Seng Index may reach 28,500 points in the fourth quarter, while the H-share index may hit 13,600 before the year ends, Peter So, CCB International managing director, said at a media briefing on Monday.

Hong Kong's key stock market gauge plunged 3.04 percent on Monday to close at 25,272.22, while the Shanghai Composite Index gained 2.41 percent to end at 3,775.91.

So believes the recent turmoil in the A-share market will only be short-term as it is mainly a correction following its steep growth in the preceding weeks.

Strong policy support is likely to lead to a rebound in both the A-share and H-share markets in July, he said.

However, expectations of an interest rate hike in the United States in September or October may weigh on H shares in August and September, So said.

Beijing has unveiled numerous measures to support the market, including a pledge from the central bank to inject liquidity into a state-backed company that offers margin financing for stock market investors.

Government efforts to shore up investor confidence reflect the vital import Beijing attaches to the market as a source of cheap funding for the broader economy, said Mark Jolley, an equity strategist at CCB International's research division.

“The government will continue to ease [policies], probably more aggressively than people may be expecting or had been expecting until recently, to maintain a strong equity market environment,” Jolley said.

He expects the People’s Bank of China to cut the reserve requirement ratio (RRR) for banks by 25 basis points two to three more times in the second half and lower the interest rate by another 50 bps this year.

Regarding the renminbi exchange rate, Jolley said the Chinese currency is likely to remain stable against the US dollar in the coming months, with volatility ranging from 1 to 2 percent, as the economy continues to improve in the long term.

CCB International suggests investors sell stocks with high valuation during the market rebound and may consider more leverage for blue chips and defensive stocks.

The brokerage gives an "overweight" rating to insurance, banking, property, healthcare, telecom and utility stocks.

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EJ Insight reporter