Recovery in stocks likely after holiday

China's consumption and new energy-related stocks are expected to experience a round of price recovery in the country's A-share market in the fourth quarter after the National Day holiday, analysts and industry experts said.

"Following a period of sharp corrections, the consumption sector is expected to see a restoration in valuation in the fourth quarter," said Wang Yang, an analyst from Zheshang Securities.

"Consumption stocks are expected to embrace an upward recovery, with home appliance, food and beverage, and biomedicine more likely to soar in price during the period," Wang said.

Liu Ran, a consumption industry analyst with Centaline Securities, noted that consumption stocks on the country's A-share market had retreated notably since February, but in the first two weeks of September before the National Day holiday, companies in the sector experienced a price rally, with the scenic spot, hotel and catering-related subsectors all reaping gains.

"Such changes indicated that the consumption sector may usher in a round of market growth in the fourth quarter," Liu said.

Analysts also expected overall positive market growth after the National Day holiday, given that the market had adjusted sufficiently before the long break.

Statistics from Wind showed that the country's A-share market had experienced a wave of adjustments before the National Day holiday both in 2020 and 2019, after which the market achieved overall growth in both years.

On the other hand, a significant upswing can be seen in the A-share new energy sector. The new energy sector has gained more than 87 percent so far this year.

Of the 19 A-share new energy companies, including nuclear power, wind power and photovoltaic power generation firms, 11 of them saw their profits increase during the first half of the year, according to analysts from Ping An Securities.

Higher equipment utilization efficiency and a larger scale of equipment installation has largely boosted the revenue and net profits of new energy companies, wrote the analysts.

On Sept 7, the National Development and Reform Commission and the National Energy Administration said that State Grid Corporation of China and China Southern Power Grid could start a test run of green electricity trading. Such trading takes green products such as wind power and photovoltaic power as targets and the investment span is usually longer.

More green electricity will be supplied as more affordable new energy generation is included, said Wang Lei, an analyst from Zhongtai Securities. As a result, there will be a price premium of green electricity and the market will be further expanded.

Under such circumstances, listed new energy operators such as China Three Gorges Renewables (Group) Co Ltd and China Datang Corporation Renewable Power Co Ltd will report faster business growth, providing more opportunities for investors, he said.