Hopes rise high for stock market rally

Analysts expect clarity on policy and efforts to stabilize economic growth from NPC session

Market insiders say fresh policies aimed at stabilizing economic growth could fuel a rally in Chinese equities lasting until the end of April - and possibly beyond.

The ongoing sessions of China's top lawmakers and political advisers will end on March 16, when details of any approved reform plans should be clearer.

How to achieve stable growth is a key agenda item, while the legislature will also adopt the final version of the 13th Five-Year Plan (2016-20), a blueprint for social and economic development.

Anticipation of a market rally already appears to have had an effect on investors, with the benchmark Shanghai Composite Index rising 3.8 percent in March, paring overall losses this year to 18.7 percent.

Wendy Liu, chief China strategist at Nomura Securities, has predicted an interim rally, particularly in oversold stocks of industry leaders with strong track records and undemanding valuations, could last through April.

"Details on supply-side reform will strengthen investor confidence that Beijing is taking action," she says in a research note. "Beyond April, one issue to watch is if China's growth may surprise on the downside, with the credit cycle unfolding and supply-side reform kicking in."

She adds that it's too early to assess whether it will help usher in more policy accommodation in the second half of this year.

Analysts at China International Capital Corp echo her views in a report, saying the A-share market will see a "relief rally" in March after the substantial correction since the beginning of the year. Sectors like coal, steel, commodities and building materials, which would benefit from supply-side reform, will likely outperform the general market, while technology, media and telecommunications will experience corrections after the recent strong rebound, they say.

Bloomberg also quoted Lirong Xu, chief investment officer at Franklin Templeton Sealand Fund Management Co, as saying that China's stocks will rebound as much as 20 percent in the short term as economic growth picks up and volatility in the renminbi decreases.

China's stock markets have been undulating since the summer rout in June. Investors' frayed nerves were calmed recently by a stabilizing yuan, an accommodative monetary policy aimed at supporting a recovery in the housing market and Beijing's improved communication.

Premier Li Keqiang delivered his Government Work Report on March 5 to the National People's Congress, the state legislature. He reiterated Beijing's commitment to continued structural reform, and emphasized trimming of industrial overcapacity and lightening tax burdens on companies, as the current environment is challenging.

Li said tax cuts this year would be worth more than 500 billion yuan ($76.6 billion; 69.6 billion euros) and would benefit companies and individuals.

To offset the impact on overall figures, the government has budgeted a 560 billion yuan increase in the fiscal deficit to 2.18 trillion yuan, an unprecedented 3 percent share of GDP.

"China will face more and tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle," Li said.

Some investors found relief in Li's report not mentioning the launch of the registration-based initial public offering system. There have been fears the new system could pressure the market with a huge supply of new shares.

Liu Shiyu, the new chief of China's securities regulator, said on the sidelines of the NPC session that his agency would strictly enforce the law and step up oversight of the stock market, to restore investor confidence and better protect their interests.

Fitch Ratings has maintained a stable outlook for China's sovereign rating, as it is looking at the NPC meeting for more information on the official strategy for addressing the structural issues.

lixiang@chinadaily.com.cn