Impact from overseas to be short-lived as supportive moves are underway
Traders work on the floor of the exchange. (COLIN ZIEMER / NEW YORK STOCK EXCHANGE / AP)
The impact from lackluster overseas markets may be short-lived for the A-share market as it is expected to rebound in the second quarter amid companies' improving profitability and government's supportive policies in the pipeline, experts said.
The benchmark Shanghai Composite Index climbed 0.02 percent on Wednesday after taking a two-day break for the Tomb Sweeping Day holiday. The Shenzhen Component Index dropped 0.45 percent and technology-focused ChiNext in Shenzhen closed down 1.24 percent.
Overseas markets' sluggish performance amid the A-share market holiday may have exerted some negative impact. The Dow Jones in the United States shed 0.8 percent on Tuesday and Nasdaq plunged 2.26 percent.
US Federal Reserve Governor Lael Brainard said on Tuesday that the US central bank could start reducing its balance sheet as soon as May and would be doing so at "a rapid pace".While the Fed has already approved a 0.25 percent hike at the March meeting－the first in more than three years－Brainard indicated that interest rates could be raised at a more aggressive pace than the typical increments of 0.25 percentage point.
In a Tuesday report, Deutsche Bank economists David Folkerts-Landau and Peter Hooper said that the US may fall into a recession next year due to the interest rate hikes and rising inflation. Unemployment in the US is forecast to reach 4.9 percent in 2024, while March statistics put it at 3.6 percent.
But analysts from Industrial Securities reassured investors that the A-share market has weathered the period when overseas markets released the most negative messages and risk-aversion sentiment peaked. As panic about the escalated Russia-Ukraine crisis is assimilated and the US Fed's interest rate rise has been nailed in March, the A-share market is bottoming out.
Experts from Guotai Junan Securities also expect the A-share market to gradually rebound in the second quarter. Companies which are in line with the inflationary cycle and offer high dividends, such as coal and chemical product providers, may create investment opportunities. Sectors related to consumption and light industrial manufacturing may pick up growth in the second quarter. Photovoltaic, wind power, electric power operation, power grid and construction companies will be investable in the long run, they said.
The A-share market's vibrancy and stability can be felt in the initial public offering market.
According to a report by professional services provider Deloitte on Friday, the Shanghai Stock Exchange was the world's largest listing venue for new shares in the first quarter of this year, recording 37 IPOs whose total financing came to 116.6 billion yuan ($18.3 billion).
Total IPO financing in the first quarter surged more than 136 percent on a yearly basis to 179.9 billion yuan, which is largely attributable to the colossal return of China Mobile to the Shanghai exchange at the beginning of the year.
Meanwhile, another 754 companies are awaiting IPO approvals in the A-share market, with the majority planning to float on the technology-focused STAR Market in Shanghai and ChiNext in Shenzhen, according to professional services provider KPMG. This reflects the market vibrancy, said KPMG analysts.
But analysts from China Securities also noted that the lockdown measures taken in Shanghai, and Shenzhen and Dongguan of Guangdong province to contain the COVID-19 pandemic will exert bigger impact on the country's economic growth if compared to the measures taken in Hubei province in early 2020, although the lockdown period is expected to be shorter now. China's economy has already confronted weakening supply and demand in March. In this sense, supportive government policies will be highly expected by the market this month, they said.