Asset managers favour China’s cement and steel stocks

Shares of Chinese cement and steel companies may pick up in the second half, thanks to steady infrastructure and property investments in smaller cities, said Mandy Chan, head of China and Hong Kong equities at HSBC Global Asset Management.

“China’s approved new home building projects in January jumped 40 per cent year on year. As it takes time for developers to get bank loans and start construction, the demand for raw materials will soar in the second half,” Chan said, adding that property sales in second-tier cities is key to national economic recovery.

Although the steel sector still faces overcapacity problems, it will enjoy an upward trend, she said. “What the market did not notice is that many private steel factories have shut down amid a plunge in steel prices since the last quarter of 2015. The demand and supply of steel has been quite balanced of late.”

Rebar futures in China have jumped 54 per cent so far this year, to 2,787 yuan a tonne on Thursday, Bloomberg reported, citing data from the Shanghai Futures Exchange.

The cement sector is also recovering. The average price has started to rebound over the past weeks, with inventory levels coming down, especially in eastern China, Chan said.

“The A-share market will be driven by economic fundamentals this year,” Chan said, given that the anticipated increase in infrastructure and property projects in the second-tier cities will support share prices of raw material providers.