China’s stock markets will rebound at least 15% this year with several sectors showing huge potential, according to mainland brokerages as the markets reopened after Chinese New Year.
The big five Chinese brokerages on average expect a rally of 20% in the A-share markets, they outline in their research reports.
Citic Securities expects the Shanghai Composite Index to peak at 2,500 this year, 23% higher than the last close before the Lunar New Year.
The reports came as the Shanghai and Shenzhen stock exchanges rose 0.6% and 1.6% respectively on Friday, the first post-holiday trading day.
Their bullish view also comes at a time when some emerging market currencies have sharply depreciated, raising concerns over the stability of the emerging market economies and the financial markets, as well as the contracted growth momentum of China.
It also comes when mainland stock markets have experienced corrections due to investor concerns about interest rate volatility and potential trust or wealth management product default cases.
There have also been concerns about the enormous selling pressure brought by new listings, which launched in January after 17-month market suspension.
However, these are the same reasons that suggest it might be a god time to buy in.
“All negative news has almost been out and sentiment is getting back,” said David Zhang, deputy CEO with the Hong Kong unit of Chinese fund firm Bosera.
The average valuation of the A-share shares has dropped 80% and now is almost at the same level with that of 10 years ago, which is very attractive and provides good entry points for investors , said Zhang.
However, the optimistic opinion does not necessarily mean investors can make money in any stock as some of the above concerns “will likely linger over the next few weeks/months, so we cannot rule out the risk of more volatility in the market,” a group of Credit Suisse analysts stated in a February 4 report.
Bosera’s Zhang likes healthcare, military manufacturing products, TMT and consumer-related products such as dairy.
Domestic brokerage Guotai Junan Securities highlights two transformed areas in its recent report: state-owned enterprises and over-capacity industries such as machinery and equipment. It believes there are opportunities in addressing some of their depressed assets.
Other areas that investors and analysts favor are environmental protection, media and entertainment, and securities houses.
Zhang suggested that domestic convertible bonds will be a good investment choice in these two years. CBs are relatively cheap as the average return last year almost equals to the yields of long-duration government bonds, or around 4.5%.
“Many clients of ours, including global investors, are starting to look at the CB market which I believe will be a trend of cross-boarder investment this year,” said Zhang.