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China equity markets as well as their peers in the Hong Kong region have risen over the past few weeks, with the rally becoming the best seen in 2023, as hopes of economic stimulus have reignited confidence in the market. Beijing has promised a range of measures to prop up economic growth in the country and market participants are closely eyeing stimulus data.
“The stronger policy support will help gradually restore investor confidence, and the inflection point has arrived for A-share market,” Lei Meng, China equity strategist at UBS Securities, wrote in a note. “As policy measures are implemented gradually and economic activities recover sequentially, A-share market is expected to see a stepwise rise, which could last for months.”
What’s driving gains in China equity?
Property and technology sectors are in focus as they have seen a massive crackdown by the Chinese government over the past years, whereas measures to boost domestic consumption have not received the expected output. China’s Politburo, last week, vowed to ramp up policy support as measures post-Covid rebound failed to take off.
“China’s economic recovery can resume, powered by a rise in consumption. Chinese stocks can benefit from stronger earnings and a follow through from Politburo discussion into growth-supportive action,” UBS said in a note.
The Shanghai Shenzhen CSI 300 Index has added gains of over 5.5% in June and July, whereas the Hang Seng index has added more than 9% in the two months. A recent Bloomberg report said that overseas funds have invested a net 49 bn yuan ($6.9 bn) during the last week of July. Foreign investors have taken large position in China equity, with the July total coming in at 47 bn yuan, the highest since January’s record 141 bn yuan.
Property stocks have been among the top gainers in the past few trading session as the Politburo pledged support for the sector by easing housing curbs. Officials have been urging banks to loosen restrictions on property purchases while maintaining stable capital market access for developers. On the other hand, Chinese authorities have said they will announce measure to optimize property policies.
The technology sector, coming out of a severe crackdown, has seen a massive rally over the past two months. The NASDAQ OMX China Technology Index, which tracks tech stocks listed in China and Hong Kong, rose more than 19% in the months of June and July, collectively. This is compared to the over 12.5% jump in MSCI China Index, which tracks large and mid-cap stocks across s China A shares, H shares, B shares, Red chips, P chips and foreign listings.
“In the second half of the year, some key concerns such as youth unemployment, soft global demand and US-China tensions will continue to put pressure on the Chinese economy. While the Politburo statement reiterates China’s ability to meet its 5% full-year GDP target, some analysts are still circumspect,” says UOB Asset Management.
“However, this announcement from the Politburo suggests improved prospects for a few targeted sectors including international tourism and logistics, electric vehicles, digital platforms, AI supply chain, industrial automation providers, importers and brokerages.”
