Stock market reverses downtrend

Analysts say recent falls probably an overreaction to global tensions, COVID

China's A-share market reversed this week's three-day downtrend on Thursday, prompting experts to issue advisories that investors should adjust their strategy to be in line with the country's growth-stabilizing policies, and also monitor global sentiment closely.

After going through a deep V-shaped rebound to contract the daily loss to 1.13 percent on Wednesday, the benchmark Shanghai Composite Index rose 1.22 percent to close at 3296.09 points on Thursday.

The Shenzhen Component Index gained 2.18 percent to close at 12370.95 points and the technology-heavy ChiNext in Shenzhen jumped 2.67 percent to close at 2635.19 points.

Analysts said the market may have been unduly spooked by recent events and fell sharply due to overreaction, and Thursday saw investors launching a spirited attempt to recover lost ground.

A-share pharmaceutical companies reported the strongest average 6.14 percent daily gain on Thursday, followed by the 5.11 percent average gain of medical equipment makers. Specifically, companies specializing in COVID-19 viral tests and drugs saw their prices surge on Thursday, with at least five companies touching the daily upside limit of 10 percent.

The A-share market has been undergoing noticeable fluctuations ever since the market resumed trading after the Spring Festival. The major reasons are the contraction in overseas liquidity, especially the expectations of interest rate hikes in the United States, as well as the disrupted sentiment worldwide resulting from the ongoing Russia-Ukraine conflict, said Xu Chi, head of strategy research at Zhongtai Securities.

Jiang Qijia, a senior analyst from Shanghai-based financial services provider Noah Holdings Ltd, said that the market will stabilize when the negative impact of the sporadic COVID-19 cases and geopolitical tensions on the sentiment mitigates. Sticking to value investments will be very important at this moment, Jiang said.

The market has high expectations that more growth-stabilizing policies will be introduced in China. But investors should bear in mind that the central government has set the tone for "high-quality development" in early 2019. A bottom line has been drawn in this sense, said Dai Kang, chief strategist of GF Securities.

The A-share market still lacks an explicit investment theme at the moment. In the short run, however, sectors with prospects for price increases against the backdrop of rising global inflation may be worth a closer look, said Dai.

On the other hand, a long-term optimistic outlook can stem from a combination of new and old economic drivers as China focuses on stabilizing growth. In this sense, leading State-owned enterprises with low market capitalization and high dividends may offer potential investment opportunities.

In terms of new economic drivers, green power supply and digital economy may churn out more opportunities. Infrastructure may be boosted by the stabilizing policies, he said.

Other Asian markets also saw sentiment turning buoyant on Thursday. Japan's Nikkei rose by nearly 4 percent and the Kospi in South Korea gained 2.21 percent. The Hang Seng Index in Hong Kong climbed 1.27 percent.

The US stock market finally rallied on Wednesday after four consecutive trading days of slump. The Dow Jones Industrial Average gained 2 percent on Wednesday and Nasdaq jumped 3.59 percent.

Guo Shiliang, an independent financial analyst, pointed out that the correlation between the global stock markets has been extremely strong this year.

In anticipation of US Federal Reserve's much-expected interest rate hikes, the global risk appetite will undergo material change this year. Risky assets that are already highly valued will be affected the most, he said.