Tech helps improve outlook for A-shares

The A-share market is showing clearer signs of bottoming out, mainly driven by the surge in the technology sector, the improved outlook for companies' profitability and central regulators' continued efforts to crack down on illegal activities and promote reform of the capital market, said experts.

The Shanghai Composite Index reported the eighth consecutive trading day of gains on Friday and stood above the psychologically important level of 3000 points by closing 0.55 percent higher. The benchmark index has thus recovered all the losses so far this year.

The Shenzhen Component Index climbed 0.28 percent while the technology-focused ChiNext in Shenzhen closed 0.02 percent higher. The combined trading value at the Shanghai and Shenzhen exchanges spiked 12.2 percent from a day earlier to top over 900 billion yuan ($125 billion).

Zhao Wei, an analyst from Founder Securities, said that the capital supporting the A-share market's bottoming out this time is not from retail investors but rather the "national team", such as Central Huijin — an arm of China's sovereign wealth fund. This has further consolidated the base for the A-share market's turnaround, pointing to clearer signs of a V-shaped recovery.

Meanwhile, there will be continued stimulative policies facilitating economic growth and the capital market's development. The speed of the implementation and the intensity of these policies are very likely to exceed market expectations, which will result in better-than-expected A-share market performance, he added.

At a Friday news conference, the China Securities Regulatory Commission said it will significantly increase on-site inspections of companies planning to get listed, as part of efforts to strengthen the crackdown on fraudulent issuance.

Yan Bojin, chief risk officer of the CSRC and head of the commission's department of public offering supervision, dispelled at the Friday meeting recent market rumors that the CSRC would retrospectively investigate IPOs over the past decade. But this rumor has reflected investors' focus on public companies' quality, he said.

The CSRC added that it would set up a system to accurately identify and crack down on market manipulation and insider trading.

Yang Delong, chief economist of First Seafront Fund, said that the CSRC has shown its resolve in further regulating trading behavior, improving the fairness of the system, protecting investors' interests and improving the quality of listed companies.

As China's capital market reform advances, investors should discover investment opportunities among undervalued quality companies. The A-share market's performance may exceed most investors' expectations, he added.

A-share artificial intelligence companies reported the strongest daily price increase of 5.89 percent on Friday, mainly thanks to the continued market attention given to the AI-based text-to-video generator Sora from US firm Open AI.

The 16.4 percent spike in chipmaker Nvidia's share price on the Nasdaq on Thursday, which was also attributed to the global AI boom, is also encouraging news for the A-share AI sector.

Domestically, the State-owned Assets Supervision and Administration Commission of the State Council said at a meeting on Monday that central SOEs should integrate AI into their overall planning and the construction of intelligent computing centers should be accelerated.

Meng Pengfei, chief engineering analyst of Kaiyuan Securities, said that recent AI technology breakthroughs will lead to the bullish performance of other A-share sectors such as semiconductors, consumer electronics, industrial machine tools and humanoid robots.

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

Li Bei, founder of Shanghai Banxia Investment Management Center, wrote on Friday that the CSRC will adopt stricter crackdown measures on market manipulation and financial fraud. The ratio of delisting will thus increase. Market speculation, especially on the small and micro-sized enterprises, will subside significantly this year.