Positive 2021 growth outlook for A-share market assets

Chinese assets have great potential for growth on the A-share market this year due to a likely global economic recovery from COVID-19 and further implementation of the 14th Five-Year Plan (2021-25), said Zhixin Investment Research Institute on Friday.

"We may see an overall global economic recovery in the second half of this year, as some economies have taken strong measures to control the pandemic and people are gradually receiving vaccines. Economic recovery will lead to improvement in corporate profits, upturns in trade and investment, accelerated international capital flows, and rising investor risk appetite," said Lian Ping, chief economist of Zhixin Investment and dean of Zhixin Investment Research Institute, while delivering a report on asset allocation.

Moreover, technological innovation, industrial upgrading and reforms promoting market-based allocation of factors of production will release the potential for growth of the Chinese economy during the 14th Five-Year Plan period, and the plan will bring a number of new growth drivers in areas including national security, digital economy and consumption upgrading, he said.

Research fellows at Zhixin Investment Research Institute advised Chinese investors to allocate 40 percent of their assets to the A-share market, with a focus on the sectors related to the 14th Five-Year Plan, procyclical behavior and capital market reforms, such as new energy vehicles, electronics and biopharm industries.

From a sector perspective, their views are similar to those of some global investment managers. Last month, Louisa Lo, head of Greater China equities at Schroders, and Jack Lee, fund manager at Schroders, said they believe sectors providing exposure to long-term growth themes in China will continue to outperform. In particular, they like areas including industrial automation, electric vehicles and components, and supply chain localization amid international trade frictions. However, a broad global economic recovery following a successful vaccine development should benefit cyclical sectors, where valuations are still cheap currently compared to growth sectors.

China has launched a series of policies to support the development of its capital market. It is estimated that new funds entering the A-share market may reach 1.5 trillion yuan ($231.9 billion) to 2 trillion yuan this year. In addition, the implementation of prudent real estate financing policies will cause a slowdown of capital inflows into the housing sector. Therefore, an increasing amount of household savings may be invested in equity assets in the future, Lian said.