First day of trading in 2023 nets volume worth $116b on attractive valuations

China's A-share market began trading in the new year on a positive note on Tuesday, riding a bounce in the shares of companies in the fields of information technology, green energy and healthcare.

The benchmark Shanghai Composite Index rose 0.88 percent to 3116.51 points and the Shenzhen Component Index closed 0.92 percent higher at 11117.13 points.

The combined trading value on the Shanghai and Shenzhen bourses approached 800 billion yuan ($116 billion) on Tuesday. Stocks of internet service providers, software developers and wind power equipment makers swelled, lifting the key indexes. Each of the three sectors reported an average daily increase of more than 5 percent.

While more COVID-19 cases have been reported across China recently, listed traditional Chinese medicine makers in the A-share market reported an average daily price gain of 3.36 percent on Tuesday. Healthcare share prices rose more than 3 percent on average.

Kaiyuan Securities said industries and fields like innovative IT, infrastructure construction, software and internet security will likely see their market size expand at a faster clip in 2023. Companies in these sectors are expected to land more business orders this year as more supportive policies are expected, they said.

CITIC Securities' Chief Strategist Qin Peijing said January is an important month for investors as they map out their A-share market strategy for the entire year. For one, China's COVID-19 cases may peak earlier than expected, which would create more room for economic recovery. For another, a time window will likely open by then for investors to increase their A-share positions, he said.

The A-share market's trading value and valuations were relatively low at the end of 2022. More capital inflows from both domestic and overseas investors are anticipated at the beginning of this year. If they materialize as expected, they could help break the deadlock. While supportive government policies will spur A-share market recovery at the first stage, better business outlook of A-share companies will further drive up the market performance in the following months, Qin said.

Analysts from Everbright Securities said current low valuations may sustain continued capital inflows from overseas investors, which could prop up the market in the short term. Although the market will continue to fluctuate before the Chinese Lunar New Year or Spring Festival break from Jan 23 to 27, there is little room for the benchmark indexes to head further south, so investors should seize this opportunity.

But analysts from China Securities said market volatility cannot be avoided in the short term as some market mavens feel the policy stimulus announced after the Central Economic Work Conference in mid-December is not as strong as they had expected.

The rising number of COVID-19 cases has created a wait-and-watch mood among some market people. External risks, including the hawkish signals expected to be given by the US Federal Reserve and the deterioration of economic data among major economies, may also lead to fluctuations in the A-share market, experts said.

Caitong Securities said A-share investors would do well to hold shares of SSE 50 companies till the Chinese Lunar New Year, which starts on Jan 22 this year.

Blue chips will lead the A-share market rally once trading resumes on Jan 30 after Spring Festival. Shares of enterprises with a track record of unusually rapid growth relative to industry peers, will likely have a bullish run in the later months, Caitong experts said.