China shares expected to continue rebound this week on stimulus hopes

PUBLISHED : Sunday, 21 February, 2016, 2:33pm
UPDATED : Sunday, 21 February, 2016, 6:57pm

After a sharp rebound in the first week of the Year of the Monkey, mainland China markets are expected to continue their upward trend in the next couple of weeks, amid expectations that authorities will keep monetary policy loose or roll out further stimulus to stabilise the economy ahead of the upcoming National People’s Congress meeting in early March, analysts say.

In addition, the appointment of a new chief of the China Securities Regulatory Commission is also likely to be welcomed by the markets. .

On Saturday, a brief statement by Xinhua said Liu Shiyu, the head of the Agricultural Bank of China, would take over as head of the CSRC, replacing Xiao Gang.

Ricky Tam Siu-hing, chairman of Hong Kong Institute of Investors, believes investors will react positively to Liu’s appointment to the CSRC, because among other changes, there’s likely to a slowing in the pace of new share listings on mainland markets.

Mainland stocks rallied strongly in the first trading week of the Year of Monkey, tracking a rebound in global markets and commodity prices. The Shanghai Composite Index finished 3.5 per cent higher, marking the best week in two months and trimming the losses since the start of the year to 19 per cent.

Analysts said mainland stocks may gain further ground in coming weeks amid growing expectations that more stimulus measures could come out before the NPC meeting on March 5.

“This week’s rebound in the A-share markets could continue after the NPC meeting, until late March or early April, as the authority usually wants to maintain stability during the top legislative sessions, while institutional investors may also hope to take the opportunity to re-position their portfolios,” said Wan Rong, analyst at China Fortune Securities.

Nevertheless, the markets may “take a circuitous route”, as uncertainty still lingers over the growth prospects of both Chinese and global economies, she added.

On the policy front, the Chinese government may unveil specific measures to boost domestic demand in the economy, similar to the easing of mortgage down payment rules unveiled by the central bank before the Chinese New Year.

“China’s economy is still very weak and can’t stand the supply-side reform only, which aims to reduce industrial overcapacity,” Wan said. “Policy makers also need to further stimulate domestic demand to balance growth.”

In addition, a possible delay in the US Fed’s plan to raise interest rates could also reduce the devaluation pressure on the yuan and give China more room for monetary easing.

China’s new yuan loans soared to a record 2.5 trillion yuan (HK$2.08 trillion) in January, statistics from the People’s Bank of China showed Tuesday.

The latest data indicate stubborn deflationary pressure in the economy, which may force policymakers to step up efforts to shore up economic growth, analysts said.

On Thursday, the National Bureau of Statistics reported that producer price index, a gauge of wholesale prices, fell to minus 5.3 per cent in January, moderating from minus 5.9 per cent in December, marking the 47th consecutive month of deflation.

JP Morgan analysts expect China’s monetary policy to remain accommodative in 2016, forecasting a rate cut, four reserve ratio cuts and a 50-basis-point reduction in the seven-day reverse repurchase rate throughout the year.

The next reserve ratio cut could be announced in early March before the NPC meeting if the yuan continued to remain stable and offshore depreciation pressures fade, JP Morgan said.

Among sectors to watch, Wan from Huaxin Securities advises investors to allocate funds to intelligent electronics makers, and traditional industries set to benefit from reform policies, such as non-ferrous metal, energy, alternative energy vehicles, health care, and leading property developers.

Additional reporting by Peggy Sito