Economic uptick boosts A-shr interest

Confidence in China's economic recovery this year has been translated into continued capital inflows into the A-share market, with the momentum likely to continue in the coming months, said experts.

According to data released by the State Administration of Foreign Exchange on Wednesday, the surplus of cross-border receipts and payments by nonbanking sectors stood at $35.1 billion in January, up 52 percent from a month earlier.

Net capital inflows from stock purchases in the A-share market reached $27.7 billion in January, the highest month on record, according to SAFE.

This has partly helped stabilize the foreign exchange market and ushered in a good start for the year, said SAFE's deputy head and spokesperson Wang Chunying during a Wednesday news conference.

The bullish performance of the A-share market since the beginning of this year has supported overseas institutions' confidence. The benchmark Shanghai Composite Index has gained over 4 percent since trading resumed on Jan 3. As of Tuesday, a total of 125 companies — or nearly 2.5 percent of the 5,000-strong A-share companies — have seen their prices surge to record highs.

Meng Lei, China equities strategist of UBS Securities, estimates that over 300 billion yuan ($43.7 billion) in foreign capital will flow into the A-share market this year via the stock connect mechanisms linking the Shanghai, Shenzhen and Hong Kong bourses.

The net northbound capital inflow was 90 billion yuan last year.

Foreign asset managers have been waiting to launch new products in China. US asset manager Fidelity International, which held a launch ceremony for its mutual fund business in China on Tuesday, has applied to the China Securities Regulatory Commission to release a stock-focused product, while industry juggernaut BlackRock is about to release two more products in China.

Laura Wang, chief China strategist at Morgan Stanley, said that the rebound in China's macroeconomy and the A-share market can be confirmed this year.

The New York-based investment bank thus suggests international investors increase their exposure to Chinese internet companies given their ample liquidity and the benefits to be brought by consumption recovery this year.

Over the long run, investors should increase their holdings in Chinese companies specializing in high-end manufacturing, technology security, hardware, software, green energy and in domestic consumption companies meeting people's upgraded demand. These companies, which are in line with China's long-term development trajectory, should be the core assets of investors' China portfolios, Wang said.

Experts from Pictet Wealth Management, a Swiss firm, said that the average price-to-earnings ratio of A-share companies hit nadirs eight times in October. While the reading of this indicator has rebounded to 12 times at the end of January, there is still room for the A-share market to rise further.

Excess household savings takes up 4 percent of China's GDP, which translates to some $740 billion of potential spending power. This will benefit discretionary consumption companies and property developers. A-share companies, which only account for a very small portion of international investor portfolios, can thus have their weightings increased, said Luca Paolini, chief strategist at Pictet Asset Management.

Wang of SAFE added that renminbi assets' appeal will be especially noticeable this year given China's improving economic fundamentals, which will be the world's major economic engine this year, according to the International Monetary Fund's forecast. This will further consolidate stable cross-border capital flows into China this year, she said.