Bulls to keep bears at bay next year

The average daily turnover of the Chinese stock market hit a record 570 billion yuan ($92.7 billion) last week. YU FANGPING/CHINA DAILY

Fresh capital flows, loose monetary policies to help sustain robust trend

The A-share market is expected to remain bullish trend for the most part of next year, as fresh capital and a loose monetary policy will help offset the economic downturn, a top brokerage said on Monday.

According to Guotai Junan Securities, non-banking financials and real estate stocks will lead the 2015 bull charge in China that could see the benchmark Shanghai Composite Index surge by as much as 20 percent.

Thanks to the latest rally, the Chinese stock market has already zoomed past Japan as the world's second-largest after the United States for the first time in three years. Average daily turnover last week hit a record 570 billion yuan ($92.7 billion), reflecting the bullish sentiment among domestic investors.

The SCI fell slightly on Monday by 0.1 percent to 2,680.16 after it was announced that the official Purchasing Manager's Index fell to 50.3 in November from October's 50.8. Turnover also dipped slightly to 401.1 billion yuan from 402 billion yuan on Friday.

But mainland analysts said that the faltering was nothing more than a minor correction and will have little impact on the longer-term bullish outlook.

"The record high turnover in the past week showed that new capital is flowing into the stock market after the central bank cut bank interest rates in early November. We believe the momentum will be maintained and the SCI will climb above the 3,200 level in 2015," said Zhao Xianghuai, an analyst with Guotai Junan Securities, adding that the flood of liquidity came mainly from portfolio reallocation of enterprises and families, as well as international investors.

"We expect a reallocation of household assets from the property sector to the insurance and equity sectors next year. A series of policy initiatives such as listing rule reform and changes in equity trading rules are expected to benefit the non-banking financial sector such as insurance and brokerage firms," he said.

Goldman Sachs said in a research note last week that they estimate China households may reallocate 400 billion yuan to equity investment from property next year. Overseas funds' China A-share allocation will also increase through the Shanghai-Hong Kong Stock Connect program and the potential Shenzhen-Hong Kong Stock Connect.

Zhao said that brokerages' average profit will increase 40 percent in 2015. In fact, many analysts have already taken long positions in brokerage and insurance shares based on projected earnings capacity. In comparison, bank shares look less attractive because of the expected narrowing of interest margins resulting from deepening financial reform and the liberalization of interest rates.

Shares of the big five banks lost their early gains after the draft regulations for a bank deposit insurance scheme were announced, paving the way for further interest rate liberalization.

Hou Like, a real estate analyst with Guotai Junan Securities, said property developers stand to benefit from asset revaluations in 2015.

"Valuations of property shares have stayed near the bottom since 2008. But they are set to rebound, supported by better policy and capital conditions," he said.

The recent rate cut is giving those highly cash-strapped developers a welcome break. Some developers can improve their earnings by rebalancing the investment portfolios or through mergers and acquisitions, he said.

Unlike the optimism among capital market participants on the mainland, investors in Hong Kong are taking a more cautious stand.

The benchmark Hang Seng index in Hong Kong suffered the worst-single day loss since February on Monday as weak manufacturing output added to worries about the slowing economy in the mainland.