Shares come in from the cold as gains point to revival

With key index adding 7pc this month, traders appear buoyed by improving economic signs

PUBLISHED : Thursday, 15 August, 2013, 12:00am
UPDATED : Thursday, 15 August, 2013, 3:31am

There are signs of a turnaround in the mainland share market, with the CSI 300 Index rising 7 per cent so far this month.

Investors were edging back into the market on the view Beijing had managed a soft landing, said Francis Cheung, the head of China and Hong Kong strategy for brokerage CLSA.

According to the China Securities Depository and Clearing Corp, there are now 1,231 "super" retail investors, each holding more than 100 million yuan (HK$125 million) of listed securities - 7.8 per cent higher than in June.

Many analysts believe that A shares have been out of favour for so long that a rebound is inevitable. "It was like a coiled spring. It only took a bit of positive data to set things up," says Jason Todd, equities strategist for CIMB Securities.

It was like a coiled spring. It only took a bit of positive data to set things up
Jason Todd, CIMB Securities

The official purchasing managers' index (PMI) of manufacturing activity rose to 50.3 last month from 50.1 in June. A reading above 50 indicates expansion and that below 50 shows contraction.

Last week the National Bureau of Statistics said industrial output increased 9.7 per cent year on year in July, compared with 8.9 per cent in June, and that fixed-asset investment grew 20.1 per cent year on year for January to July.

Alan Wang, a fund manager at Value Partners, said the macro data reported last week was only slightly better than expectations, but a little positive news went a long way.

"Prior to last Friday, China was the most hated capital market in the region, but now there are inflows," Wang said.

Premier Li Keqiang is trying to direct more capital into privately owned firms, and wean the economy off the centrally planned, state-led model.

The Li model has been evident in a series of modest reforms. But so far his programme has been more about the things the government will not.

For example, Li refrained from intervening during the bank funds crunch in June when interbank rates skyrocketed, nor did he announce any big-bang stimulus programmes even as it became increasingly clear that the economy was slowing.

Investors have been reacting negatively to Li's measures so far, but last week's positive economic news swung investors around to the view that they are working.

But Todd is still sceptical. "The market will not pay for a reform dividend because we don't know what it will look like," he said. "There is so little transparency that it's very difficult to pay up for this."

Wang said the market might be waging a referendum on Li's policies but the locals were still negative about the plans.

The former Beijinger closely monitors chatter on Weibo, which he says is abuzz with issues like pollution and corruption.

"Many believe [former premier] Wen Jiabao made incorrect decisions in managing the economy. People hope Mr Li will do a much better job but they want to see evidence that the government is doing the right thing," Wang said.

Offshore investors, however, were positive on Li's reform moves, as seen in their recent H-share buying spree, he said.

The local market is still trading on thin turnover, though.

A-share price-earnings multiples are about a third of historically high levels and the CSI 300 Index is down 6.9 per cent for the year.