Risk appetite boosts optimism

Upbeat sentiment marks the A-share market as investors' risk appetite has further recovered amid the recently introduced stimulative policies and improving macroeconomic indicators, said experts.

On 20th of May, the benchmark Shanghai Composite Index added 0.54 percent to close at 3171.15 points, its highest level so far this year, driven by shares of precious metal companies that rose 7 percent on average and shares of nonferrous metal companies that climbed 4 percent on average, spurred by the rising prices of gold and silver in the global market.

The Shenzhen Component Index rose 0.43 percent and the technology-heavy ChiNext gained 0.59 percent.

Overall, trading was active on 20th of May, with the combined trading value on the Shanghai and Shenzhen exchanges jumping 12 percent from the previous trading day to 995.4 billion yuan ($137.7 billion).

Qin Peijing, chief strategist at CITIC Securities, said that the prospect of China's economic fundamentals bottoming out has been further consolidated after the release of April economic data over the past few days. Combined with the supportive property policies, investors' positive outlook on China's economic growth in the second half of the year will be better grounded, pushing up the overall risk appetite in the A-share market, he said.

With fresh optimism sprouting, upward momentum in the A-share market is expected to continue. Investors should direct more attention to growth enterprises and companies showing lower volatility but providing higher dividends, Qin said.

The breezy sentiment in the A-share market found evidence in foreign capital inflows as well, said Qin.

Northbound capital from foreign investors buying A shares via the stock connect program linking the Shanghai, Shenzhen and Hong Kong exchanges reported net inflows of 1.9 billion yuan over the past trading week, according to market tracker Wind Info. Overseas investors increased their exposure to 1,508 A share firms.

Net A share purchases by overseas investors reached 45.1 billion yuan in April.

Cheng Yu, head of research at Allianz Global Investors Fund Management Co Ltd, global asset manager Allianz Global Investors' wholly foreign-owned public fund management company in China, said the valuation of A shares is "extremely low" at present. The Chinese stock market is at a turning point when companies' improving profitability is driving the market up.

The third quarter may be an optimal time to increase exposure to A shares as China's economic recovery will be further consolidated and the US Federal Reserve is expected to start its interest rate cuts, he said.

But experts from China International Capital Corp Ltd highlighted that foreign investors' exposure to A shares is still at a low level. So more foreign capital inflows can be anticipated, forming another force driving up the A-share indexes.

Chen Guo, chief strategist at China Securities, said the lowered minimum down payment ratios for first and second homes nationwide, which were announced on Friday, have exceeded market expectations and kindled optimism in the A-share market.

But it should be noted that domestic demand still awaits a significant rebound while production has recovered. Investors can be cautiously optimistic about the A-share market performance in light of its marginally recovered supply-demand relationship. But aggressive investment is unwarranted in the short term, given the various uncertainties in the external market.

Opportunities may lie in A-share companies that benefited from improving exports, including engineering machinery and home appliance companies, he said.