Are Chinese equities set for a bull ride?

November 07, 2019 15:31
News that China and the United States are close to signing a trade deal should boost investor confidence and pave the way for the return of the bull market. Photo: Weibo

The Shanghai Composite Index is approaching 3,000 points. People are again talking about the arrival of the bull market.

But is it for real this time?

The index hit a high of 3,200 points in April, when the market was expecting a US-China trade deal. But when US President Donald Trump posted a tweet on May 5, announcing a 25 percent tariff on US$200 billion of Chinese goods, investor sentiment turned sour. A shares plunged and the benchmark index hit a low of 2,733 points in August.

Now, leaders of both nations said they have reached a consensus. That should relieve investor concerns and pave the way for a market recovery.

At the same time, some of China's internal challenges appear to be easing.

It is widely perceived that the private sector is getting unfavorable treatment compared to state-owned enterprises, and this has hurt investors’ confidence.

There are other issues such as rising costs and bottlenecks in China’s economic structure.

But in a recent conference, President Xi Jinping pledged to further open up the economy and pursue market reforms to create a better business environment.

Xi also said the government would continue to reduce the number of areas in which investment is restricted or prohibited, improve information disclosure and strengthen the enforcement of intellectual property rights in civil and criminal courts.

This should give investors further reason to be more bullish on Chinese equities.

This article appeared in the Hong Kong Economic Journal on Nov 6

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist