COVID-19 recovery hopes, sustained economic confidence lift sentiment

Share prices in Chinese mainland bourses rose on Tuesday on rising COVID-19 recovery hopes and increased confidence about the domestic economy, with agricultural and technology firms in the limelight.

The benchmark Shanghai Composite Index rose by 2.05 percent to 2820.76 points, regaining the 2800 point mark after 15 trading days. The Shenzhen Component Index gained 3.15 percent to 10428.91 points, while the ChiNext Index for small-cap technology growth companies saw an intraday increase of 3.31 percent.

Data from Shanghai-based market tracker Wind Info showed that agricultural companies logged a 5.78-percent daily increase on average. Nearly 16 of the 70 A-share listed agricultural companies soared by the daily price increase limit of 10 percent on Tuesday.

Prices of precious metal firms, food and beverage companies, software service providers, information technology companies, as well as cement and construction material manufacturers also rose by more than 4 percent on average.

Meanwhile, companies with businesses related to digital currencies reported an average daily price spike of 7.54 percent on Tuesday, attracting a whopping 678 million yuan ($96 million) of investment. The People's Bank of China, the central bank, said on Friday that it would unswervingly push forward the research and development of a legal digital currency, which acted as a major morale-booster to the market, said a research report from Sealand Securities.

On a broader perspective, the A-share market is likely to continue to rebound given the supply chain reform and deleveraging that the central government has carried out since 2015, said Wang Delun, chief strategist of Industrial Securities.

The country's economy and stock market are relatively healthier when compared to overseas markets. The robust domestic consumption, which has become a major economic driver, will provide more defensive power during the time of difficulty, he said.

Even as the A-share market took a break on Monday for the Tomb Sweeping Day, the global markets rebounded strongly, with the Dow Jones Industrial Average surging 7.73 percent on Monday and the Nasdaq by 7.33 percent. The bullish sentiment in the global markets percolated down to the A-share market, said analysts from Jufeng Investment Information.

Northbound investment, which is the total trading volume of overseas investors via the stock connect programs in the Chinese mainland, hit a 64-day high of 14.51 billion yuan on Tuesday.

Chen Guo, chief strategist of Essence Securities, said stabilizing commodity prices, especially oil prices, have indicated a sign of bottoming out. The market has stopped panicking about liquidity shortage and started reassessing the novel coronavirus' impact on the real economy. Risky assets in areas where better control of the epidemic has been implemented and its results observed, for example the A-share market, have gained the attention of international investors, an indication that global assets have started gaining traction.

Analysts from Qianhai Alliance Asset Management said that the leading price-to-earnings ratio of the A-share market was at 15.5 times when the market closed on Friday, which was already at the bottom level based on historical data. In this sense, the valuation is quite attractive and investors could look for opportunities in leading companies in pharmaceuticals, consumption, technology, financial and infrastructure industries.