A shares regain mojo after long market rest

After the seven-day Chinese Lunar New Year holiday, the A-share market made long-awaited decent gains as trading resumed on Monday. It was buoyed by anticipated policies for stabilizing economic growth and the bullish performance of overseas markets during the break.

The benchmark Shanghai Composite Index gained more than 2 percent to 3429.58 points, while the Shenzhen Component Index rose almost 1 percent to 13456.65 points. The technology-focused ChiNext in Shenzhen edged up 0.31 percent to 2917.86 points.

In the A-share market, engineering consulting service providers reported the biggest average daily increase of 8.38 percent, followed by the 7.46 percent average daily increase of mining companies.

Northbound capital－overseas capital buying into the A-share market via the stock connect programs linking Shanghai and Shenzhen with Hong Kong－reported a net inflow of over 5.55 billion yuan ($873 million).

Yang Delong, chief economist of First Seafront Fund, said the bullish performance of the A-share market is as per expectations.

On the one hand, negatives like the less-than-stellar macroeconomic readings and US Federal Reserve's interest rate hikes were already factored in, as reflected in the market slide in January.

On the other, overseas markets have all shown a strong performance when the A-share market suspended trading for Spring Festival. The major indexes in the United States reported gains for four consecutive trading days to Feb 2.

The Hang Seng Index in Hong Kong jumped more than 3 percent to 24573.29 points on Friday, the first trading day of the Year of the Tiger. The sentiment among A-share investors has thus started to bottom out, said Yang.

Xu Chun, research head at Changjiang Securities, said the brokerage is optimistic about the A-share market's prospects, given China's relatively independent and moderately flexible monetary policy against a backdrop of US Fed tightening its monetary policy.

As China has been transitioning from old economic drivers to new growth engines, both the old and new drivers are expected to stabilize growth during the transition, while the credit environment is expected to improve with supportive policies about to be introduced, said Xu.

Qin Peijing, chief strategist of Citic Securities, said the A-share market will be more lucrative for investors in the first half of this year and its performance is likely to stabilize in the second half. The country's economic growth is expected to return to pre-COVID levels and market liquidity is reasonably adequate. Blue-chip companies will attract the most attention from investors.

Long-term capital, which is best represented by financial institutions, will have more pricing power in the A-share market this year. While the size of mutual funds will continue to expand this year, capital inflows into the A-share market from foreign institutions, insurance companies and wealth management firms will rise significantly this year, said Qin.

Nicholas Yeo, head of China equities at Aberdeen Standard Investments, said he holds a positive outlook on the A-share market for this year in light of the booming Chinese consumption market and the number of economic stimulus policies in the pipeline.

A-share companies in businesses related to discretionary consumption, data services, environmental protection, health and wealth management may be worth a closer look, said Yeo.