Equities still have enough room for returns, say experts

Stocks on the Chinese mainland plunged on Monday to a 28-month low, with analysts saying it is a golden time to invest in the A-share market as it benefits from improving liquidity and strong economic resilience in the second half of the year.

The benchmark Shanghai Composite Index fell by 2.52 percent to 2775.56 points, with steel, coal, banking, real estate and securities shares leading the decline amid a falling yuan exchange rate.

The Shanghai Stock Exchange 50, dubbed China's "Nifty Fifty" index, slid 3.77 percent.

The Shenzhen Component Index closed 2.13 percent lower at 9179.80 points. The ChiNext Index, which tracks China's growth enterprises board, declined by 1.14 percent to close at 1,588.37 points.

An index of major real estate developers dropped 2.56 percent on Monday, in response to expectations of potential changes to shantytown renovation policies. Poly Real Estate Group Co Ltd declined by 9.75 percent and China Fortune Land Development Co Ltd fell by 7.77 percent.

However, almost 50 shares still climbed by their daily limit of 10 percent, including Avcon Information Technology Co Ltd and Suzhou Chunxing Precision Mechanical Co Ltd.

Zhang Xia, chief strategist at China Merchants Securities, said rising trade tensions between the United States and China, and deleveraging moves are the main reasons for the Chinese A-share market slump in the past few weeks.

Investors should maintain confidence as the Chinese government is determined to carry out reforms and is focused on technology and consumption, he said.

"The liquidity conditions of the A-share market in the second half of the year will be significantly improved with almost 100 billion yuan ($15 billion) injected into the market," said Zhang. "We believe a bull market will start from the second half of 2018."

Qin Peijing, chief strategist at Citic Securities, said in a statement that investor sentiment has been extremely low in the past few weeks, and July and August will be a golden time to invest in the A-share market because of China's strong economic resilience.

The Caixin/Markit Manufacturing Purchasing Managers' Index came in at 51.0 in June, slightly lower from 51.1 in May, suggesting optimism across the manufacturing sector. A result above 50 indicates growth.

Qin said shares in consumer, pharmaceutical and new energy vehicle companies could be of great potential in the medium and long term.

A report from Essence Securities Co Ltd said the Chinese A-share market is still seeing technological adjustment and it is expected to bottom out in the second half. The ChiNext Index could be the driver for the whole market, it said.