Source: Zhitong Finance
Author: Zhuang Lijia
Some analysts pointed out that based on some potential positive factors, including technology, capital flows, and profit prospects, there may still be room for a rebound in the Chinese stock market.
The data showed that the Shanghai and Shenzhen 300 Index rebounded from February lows and broke through several key resistance levels. Meanwhile, overseas investors have begun to return to the Chinese stock market, and analysts have raised their forecasts for corporate profits. In addition to these encouraging developments, there are other tensions, including relatively low valuations and government initiatives to boost the economy and the stock market. Furthermore, the continued rise in the Chinese stock market is likely to have a wider impact, helping to increase the overall attractiveness of emerging market assets.
The following four charts show why more and more investors are bullish on the Chinese stock market.
1. Positive technical signals
From a technical perspective, the outlook for the Chinese stock market is clearly promising. Since this year, the Shanghai and Shenzhen 300 Index has risen 7%, surpassing the low set in March 2020 and breaking through the downward trend line connecting a series of highs since February 2021. The index closed at 3,664.56 points on Thursday, above the February low of 3,179.63 points.
Jai Balasubramaniam, chief market technician at CashThechaos.com, said: “At least in the short term, there has been a marked improvement in market sentiment.” “There has been a technical breakthrough in the Chinese stock market. The target point of the Shanghai and Shenzhen 300 Index is 4,100 points.”
2. Good capital flow
Overseas investors have also begun to return to the Chinese stock market, and the previous outflow of overseas capital was reversed. Sunil Koul, Asia Pacific equity strategist at Goldman Sachs Group, said that since valuations are still low and positions in hedge funds and long fund positions are still close to five-year lows, this round of rebound may continue for some time.
3. Improved profit prospects
Profit expectations — arguably the most valued indicator for long-term investors — have also begun to recover. According to the data, analysts raised the earnings per share forecast for the constituent stocks of the Shanghai and Shenzhen 300 Index in April. This is the first time in 7 months. However, any improvement in earnings is far from guaranteed, especially with first-quarter results largely falling short of analysts' expectations.
4. There are signs that it has bottomed out
Earnings expectations for April and May have improved, which may indicate that the three-year decline in the Chinese stock market may have bottomed out. The data shows that after the Shanghai and Shenzhen 300 Index hit lows in 2014, 2016, 2018, and 2020, profit expectations for the next three months all increased.
HSBC Holdings strategists, including Herald van der Linde and Prerna Garg, wrote in a client note: “Against the backdrop of supportive policy announcements and profit flexibility, investor sentiment towards mainland China has changed.” “Low valuations, policy support, and no major downside events in terms of earnings should keep the market risk/reward at a convincing level.”
Editor/Jeffy