Tourism, hospitality stocks shine; banking, property, blue-chips in focus

The A-share market closed higher on the first trading day of April amid consensus among mavens that share prices may be bottoming out, given that more favorable government policies appear to be in the pipeline.

Unaffected by the slump in the US stock markets on Thursday, which saw the Dow Jones Industrial Average shedding 1.56 percent and Nasdaq falling by 1.54 percent, the benchmark Shanghai Composite Index gained 0.94 percent on Friday.

In Shenzhen, Guangdong province, the Shenzhen Component Index rose 0.91 percent while technology-focused ChiNext climbed 0.28 percent.

The tourism and hotel sector reported an eye-popping 4 percent daily gain, with six companies rising by the 10 percent limit, on Thursday's announcement from the Ministry of Culture and Tourism about further tax and fee cuts for tourism companies.

Experts from Central China Securities said the SCI may see minor fluctuations in the short run while the ChiNext may witness slightly bigger movements. Investors can look for opportunities in shares of companies in industries like banking, property development, computers and coal in the short term and in undervalued blue-chips in the longer term.

Yang Delong, chief economist of First Seafront Fund, said negative messages from domestic and overseas markets somewhat affected the A-share market sentiment this year, with the average price-to-earnings ratio touching an all-time low of 12 times.

But the significant adjustment over the past few months, exemplified by the unsuccessful issuance of new mutual fund products, the liquidation of certain private equity products, or investors' extremely pessimistic sentiment of the past few weeks, appear to show the A-share market may have digested much of the negative impact already and is nearing the bottom, Yang said.

Hong Hao, managing director and head of research at BOCOM International, said the SCI will likely fluctuate between 3200 and 3800 points this year, and may touch 3000 points in the worst-case scenario.

Data in the public domain showed that northbound capital－overseas capital buying into the A-share market via the stock connect mechanisms linking Shanghai, Shenzhen and Hong Kong－reported a net outflow of 45 billion yuan ($7 billion) in March, ending the net monthly inflows that began in October 2020.

However, Eric Bian, investment strategist at Wellington Management, said he still believes Chinese equities offer reasonable valuations at present, especially by taking into account the likelihood of domestic policy support and the potential for lower correlations with other global risk assets.

Industrial Securities analysts said they also expect more expansionary policies in the second quarter, especially on the monetary policy, credit environment and property development fronts.

The Caixin China General Manufacturing PMI, which was released on Friday, came in at 48.1 in March, down 2.3 percentage points from a month earlier and the lowest since March 2020.

Cheng Qiang, chief macroeconomic analyst of Citic Securities, said the resurgence of COVID-19 in parts of China has affected the country's manufacturing sector, with production at some places suspended, which in turn affected both the demand-supply scenario and transportation efficiency. So, more stimulative economic policies can be expected soon, with infrastructure investment likely to be one of the key growth drivers.

Risks will mainly come from overseas markets, said Industrial Securities analysts. As liquidity tightens in the United States, the US stock market may fluctuate more significantly, potentially affecting the A-share market performance in the medium and long terms, although the Chinese bourses bucked this general trend on Friday.