A-share market forecast to sustain bullish growth

Chinese A-share assets are likely to continue outperforming most overseas equities in 2021, thanks to the country's robust economic recovery and the inflow of capital from foreign investors and domestic residents, experts said on Thursday.

The CSI 300 index, a benchmark of the A-share market, has climbed 6.79 percent since the beginning of 2021 to Thursday's close at 5564.97 points, trading around its highest level in 13 years and outrunning the S&P 500's 2.55-percent rise this year as of Wednesday, according to market tracker Wind Info.

"The A-share market is likely to continue leading global equities in 2021," said Channel Yeung, China market analyst at FXTM, a United Kingdom-based global trading platform.

While it will still take some time for many major economies to end large-scale lockdowns and achieve economic recovery, China is already on the positive growth track and is expected to further expand its momentum this year amid policy support, he said.

On Monday, China reported 2.3 percent economic growth in 2020, becoming the world's only major economy expected to have avoided contraction last year.

As consumption and corporate investment are normalized in China, A-share firms are expected to see their earnings rapidly recover, enhancing their investment allure and attracting more foreign investors, Yeung said.

From Jan 1 to Thursday, the A-share market saw a net inflow totaling 48.7 billion yuan ($7.5 billion) via stock connect programs with Hong Kong, with Jan 8 seeing 20.6 billion yuan worth of net inflows, the second-highest in history, according to Wind Info.

The bullish sentiment also prevailed among Chinese investors. A mutual fund issued by E Fund Management Co Ltd broke the record for the initial subscription amount in China's mutual fund industry on Monday, attracting more than 230 billion yuan in subscriptions.

The wave of Chinese families investing more in stocks and funds would be a key aspect of this year's market uptrend, thanks to the shrinking supply of shadow banking products curbs on housing purchases, as well as strengthened investor protection and quality of listed firms in the capital market, said Wendy Liu, head of China strategy at UBS Global Research.

Meanwhile, about 200 billion yuan worth of foreign capital is expected to flow into the A-share market this year, helping the CSI 300 climb to 5950 points in an optimistic scenario, Liu said.

Lynda Zhou, chief investment officer for equities in China at global asset manager Fidelity International, said the A-share market may outrun global equities this year amid continued foreign inflows, with cyclical shares that are the most sensitive to economic recovery and consumer discretionary sectors likely to be among the big winners.

Cyclical sectors like oil, chemicals, machinery and metals led the market higher on Thursday, sending the CSI 300 up 1.62 percent, according to Wind Info.

However, volatility will intensify in the A-share market this year, particularly as shares traded at high valuations face substantial downward pressure if their earnings fail to meet market expectations, Zhou said.

After ending last year on a strong note with the CSI 300 rising over 27 percent, some A-shares, especially industry leaders in the sectors such as liquor, medical care and new energy vehicles are now traded at relatively high valuations.

The expensive industry leaders may face short-term corrections as investors turn to cheaper companies, but should again attract investors when their valuation levels become more reasonable, given institutional investors' preferences for shares with high earnings growth and steady prospects, said Yeung from FXTM.