Long-term confidence marks A-share market

Though key indexes dip, experts stay optimistic amid mfg PMI expansion

Ups and downs can be seen as a natural phenomenon amid the A-share market's current upward trajectory, which is built on China's economic recovery, economic restructuring and stronger investor confidence, experts said.

Although the benchmark Shanghai Composite Index shed 0.42 percent and the Shenzhen Component Index slid 0.8 percent on Tuesday, northbound capital — the amount of A shares that overseas investors purchase via the stock connect mechanisms linking the Shanghai, Shenzhen and Hong Kong exchanges — exceeded 10 billion yuan ($1.5 billion). Total northbound capital inflow has topped 140 billion yuan so far this year, overtaking full-year data in 2022.

Eugene Qian, chairman of UBS Securities Co Ltd, expressed long-term confidence in the Chinese market given the country's ongoing economic recovery.

"Investing in China is not optional but essential," Qian said.

China's official purchasing managers index for the manufacturing sector came in at 50.1 in January, returning to expansionary territory for the first time in four months, said the National Bureau of Statistics on Tuesday.

In its World Economic Outlook Update released on Tuesday, the International Monetary Fund raised its forecast for China's 2023 GDP growth rate to 5.2 percent, up 0.8 percentage point from its October projection.

Analysts from Eastspring Investments, a global asset manager under insurer Prudential plc, wrote in a report in late December that China's emphasis on economic development, especially measured by GDP per capita, as well as its continued pace of innovation, will be translated into "alpha opportunities" in equities that are aligned with China's strategic goals or its structural growth trends, including high-end manufacturing, new energy, healthcare and semiconductors.

Bo Meunier, portfolio manager at Boston-based investment firm Wellington Management, has also noticed structural investment opportunities in Chinese equities as the Chinese government has reiterated its long-term strategic development focuses, including its emphasis on green transformation, improvement of healthcare services and integration among certain industries.

Therefore, investors can look for opportunities from listed solar energy suppliers, electric vehicle makers and component producers, medical equipment makers and courier companies, she added.

Analysts from CITIC Securities said that net foreign capital into the A-share market is projected at around 200 billion yuan to 300 billion yuan in 2023.

The foreign capital inflow will outnumber the annual average of 243.7 billion yuan over the past three years, Zhongtai Securities Chief Strategist Xu Chi further predicted.

"Foreign capital will make up a major source of incremental capital into the A-share market this year given loosening global liquidity and the increasingly noticeable investment value of China assets amid the country's economic recovery," Xu said.

A structural bull can be witnessed in the A-share market this year, led by the rebound in consumption, new energy and technology companies as China is undergoing restructuring in economic growth, said Yang Delong, chief economist from First Seafront Fund.

As understood by Ding Ke, general manager of LC Securities, to better serve the real economy will be a major theme of the Chinese capital market this year.

While helping Chinese families increase their capital gains, the capital market will also facilitate the development of strategic emerging industries in China, Ding said.