Experts back long-term bets on A shares

Market flat but profits seen in stocks of advanced manufacturing and net firms 

Adopting a long-term perspective in a largely flat stock market could yield profitable opportunities for A-share investors, as macroeconomic data and market expectations appear to be at a variance, said experts.

Their remarks take cognizance of the current market situation where an absence of high gains is also marked by active trading, with the combined turnover of the Shanghai and Shenzhen bourses topping over 1.25 trillion yuan ($193 billion) on Monday.

For the 19th trading day in a row, the combined trading volume exceeded 1 trillion yuan.

On Monday, the benchmark Shanghai Composite Index rose marginally to close at 3517.34 points while the Shenzhen Component Index slid 0.71 percent to 14693.74 points.

The technology-focused ChiNext in Shenzhen shed 1.31 percent to close at 3301.39 points, reporting a decline for the fourth consecutive trading day.

Since 2010, periods of large trading volumes on the A-share market have been followed by relatively longer flat periods, said strategists at Shenzhen-based First Seafront Fund.

Based on past experiences, the A-share market is at the later stage of credit contraction.

The market fluctuations may be magnified. At the moment, investors can look at traditional industries that are being revalued, including nonferrous metals, coal, chemical, steel, real estate, banking and construction, said First Seafront Fund experts.

According to data released recently by the People's Bank of China, the outstanding total social financing (TSF), which measures all funds moved from the financial sector to the real economy, increased 10.7 percent year-on-year in July. But the figure was deemed lower than expected, market insiders said.

Analysts with HSBC Jintrust Fund Management wrote in a report the lower-than-expected TSF data can be largely attributed to the slowdown in government bonds. The value of newly issued government bonds reported in July was 363.9 billion yuan less than that in the previous month, which may be the result of stricter examination at local governments.

But corporate bonds have come back to a normal level in July. The TSF level will gradually stabilize in the following months, according to the report.

China Merchants Securities analysts said the lower-than-expected TSF data have indicated that China's economic growth may encounter more headwinds as the previously announced economic stimulus policies marginally lose their effectiveness.

But policies in general are still stable, with innovation and economic restructuring serving as the new economic drivers.

Against this backdrop, investors are advised to look for opportunities in advanced manufacturing and internet companies with businesses closely related to the manufacturing sector, said experts.

Deng Lijun, chief strategist at Northeast Securities, holds a neutral outlook on the A-share market's short-term liquidity given the lower-than-expected July TSF data. But he said he remains bullish on the A-share market's long-term prospects as companies' profitability has continued to improve.

In the short run, however, the small to mid-cap growth enterprises, especially those reporting positive half-year fiscal results, may present good opportunities for investors.

New energy and semiconductor industries can be good targets in the long term, thanks to the government policies. "New infrastructure" may pick up development speed in the following months, thus pointing to opportunities in 5G, industrial internet and artificial intelligence, said Deng.