Bright resumption augurs well for A shares

Stock-market mavens welcomed the positive start to trading in the Lunar New Year as the bourses reopened on Monday after the eight-day Spring Festival holiday, noting there is still room for further uptrend amid various growth indicators, recovery in market appetite and anticipation of more stimulative policies.

The benchmark Shanghai Composite Index rose 1.56 percent to regain the 2,900-point level on Monday while the Shenzhen Component Index rose 0.93 percent.

Technology-focused ChiNext in Shenzhen closed 1.13 percent higher. The total trading value at the Shanghai and Shenzhen bourses exceeded 950 billion yuan ($132 billion).

Artificial intelligence companies reported the strongest daily price increase of 5.96 percent on average, spurred by the instant fame won by Sora, the text-to-video generator released by ChatGPT's maker Open-AI on Friday.

Experts from China International Capital Corp said that major overseas markets reported gains as the A-share market took the Spring Festival break, with latest progress made by technology companies attracting market attention.

The Hang Seng Index in Hong Kong reported three consecutive days of gains as it resumed trading on Feb 14 in the Chinese New Year that began on Feb 10, rising 3.77 percent by Friday. The sub-index Hang Seng Tech spiked 6.89 percent in the three trading days to touch the highest level in a month.

Combined with the strong travel and consumption data in the Chinese New Year, investor sentiment is likely to further recover and a bullish performance can be expected in the following days, said CICC experts.

As Central Huijin, an arm of China's sovereign fund, expanded its investment scope in the A-share market before the Lunar New Year, the liquidity deficiency in the stock market has been properly addressed and the returns to investors are likely to improve, said Qiu Xiang, joint chief strategist at CITIC Securities.

The better-than-expected data on January aggregate financing to the real economy, released on Feb 9, combined with the many consumption highlights during the Spring Festival holiday, could mean that government policies will likely be more flexible this year, to respond to the disruptions in economic activities, he said.

Analysts from Haitong Securities said that marginal improvements can be expected in policies and capital this year. As the A-share market is gradually bottoming out, investors can look for opportunities in hard technology and pharmaceutical companies, they said.

During a State Council's plenary meeting on Sunday, Premier Li Qiang said that more efforts should be made to boost confidence and expectations. Policymaking and implementation should be consistent and stable, he said.

In its latest quarterly review released on Feb 13, index provider MSCI Inc removed 48 A shares from its MSCI China Index and added another four new A shares. The adjustment will take effect on Feb 29.

Wu Xinkun, chief analyst of Haitong Securities, said the removal of the 48 A shares was mainly because their market value fell to between 10 billion yuan and 24 billion yuan each, lower than the MSCI's lower limit.

Liu Gang, chief strategist for overseas markets at CICC, said the 48 companies accounted for only 0.097 percent weighting in the MSCI Emerging Markets Index. The capital passively tracking the A shares via the MSCI Index may thus lead to 330 million yuan in outflows due to the latest adjustment. But such capital outflows will exert very limited impact on the A-share market, as it equals to only 0.04 percent of the daily trading value of the A-share market in 2023.

Zhou Wenqun, equity portfolio manager at international asset manager Fidelity International, said that A-share companies' profitability has started to bottom out since the third quarter of 2023. If more stimulative policies are adopted this year, A-share companies' profitability is expected to come in at a high single-digit level.

As China's economy further recovers, Fidelity will increase its exposure to the undervalued A-share cyclical sectors, including consumption, materials and industries, she said.