China stock market

Chinese institutional investors turning bullish, betting worst is over for domestic stock markets, JPMorgan survey says

73 per cent of institutional investors surveyed expect mainland Chinese stock markets will reverse their downward spiral over next 12 months.

PUBLISHED : Monday, 03 September, 2018, 8:01am
UPDATED : Monday, 03 September, 2018, 11:08pm

Bullish sentiment is building for China’s battered stock markets.

A survey of Chinese institutional investors by JPMorgan Asset Management found that 73 per cent expect mainland Chinese stock markets will reverse their downward spiral, and 33 per cent say shares will rise between 5 per cent and 15 per cent in the next 12 months.

China’s Shanghai Composite Index is down 18 per cent for the year, making it the worst-performing major exchange in the world.

The seven oddest things about China’s US$7.4 trillion stock market

But institutional investors see a number of factors signalling that the worst may be over: foreign fund inflows have increased. Listed companies are posting record buy-backs. Earnings and dividend yields are rising.

“With trade war uncertainty hanging over the market and a government deleveraging campaign weighing on domestic growth, we were a little surprised to find Chinese investment professionals are actually fairly bullish on their home market equities over the next year,” said Hui Tai, a strategist at JPMorgan Asset. “These results suggest onshore investors may be taking a more favourable view on domestic equities, with sentiment improving.”

Traders brace for a rough ride as volatility returns to China’s once-placid stock market

The survey, which was conducted in August, covered more than 200 investment professionals in Beijing and Shanghai. Twenty per cent of them predict the gains on Chinese stocks will exceed 15 per cent in the following year, according to the survey.

The Shanghai Composite closed 0.5 per cent lower at 2,725.25 on Friday, marking a 5.3 per cent loss for August.

About 130 companies on the Shanghai and Shenzhen exchanges will probably offer a dividend yield exceeding 4 per cent in the next 12 months, according to Bloomberg data. That trounces the yield on China’s 10-year sovereign bonds that currently stands at about 3.6 per cent.

China stocks world’s worst performers in first half of 2018, volatility surges in Hong Kong to two-year high

“The rising dividend ratio makes current stock prices even more attractive,” said Zhu Chaoping, a global market strategist at JPMorgan Asset. “As reflected by the continuous northbound purchase by foreign investors via stock connect, long-term investors are gradually entering this market.”

So far this year, foreign investors have spent 246 billion yuan (US$36 billion) on Chinese stocks through the connect programmes with Hong Kong this year, Bloomberg data showed.

Overseas inflows may come at a faster pace starting in September, as index compiler MSCI begins to double the representation of Chinese stocks in its global benchmarks.

This round of MSCI inclusion is expected to attract US$900 million. An extra US$3 billion will flow in, if the weighting doubles to 10 per cent in the coming 18 to 24 months, according to Stephane Loiseau, head of cash equities and global execution services for Asia-Pacific at Societe Generale.

“Active investors have demonstrated renewed interest in China to tap the liquidity and trading opportunities,” he said. “Chinese equities are under-represented in global investors’ portfolios but will eventually become mainstream for them.”