After a miserable first half, A shares are climbing back

THE SHANGHAI Composite Index, which has been steadily climbing back from year-to-date lows in late June, was stoked with a shovelful of upside fuel in the form of categorically supportive policy for China’s gargantuan coal industry, and chips in the sector showed their appreciation with a sudden surge.

However, investors are also hoping for more clarity on just how much Beijing is willing to relax its grip on the central credit valve as the economy appears to be entering a slower-growth phase and news from industrialized economies continues to underwhelm.

Analysts approached by Chinese language medial portal SinaFinance offer a wide spectrum of opinions on where the Index -- China’s benchmark tracker of A-share firms – might be headed not only today but also going forward into the cooler months.

The Index edged up yesterday by 0.3% to close at 2,603.48, and most analysts are saying the 2,600 level will likely be relatively easy to protect over the next few sessions.

However, they also say that a lack of clarity on credit direction will send jitters through the property sector as developers are one of the first to feel the brunt of tighter lending policy – or a lack of clarity on just where interest rates or possible anti-speculation regulations are headed.

The property sector, and investors in the sector’s shares, have traditionally erred on the side of caution when policy direction was either delayed or muddled.

Trading volume in A shares, often a reliable indicator of market and policy clarity one way or the other, was decidedly thin yesterday at 179.7 bln yuan, down nearly 41 bln from Wednesday, and analysts say they will be watching transaction volume closely today and in the coming sessions as a telling indicator of how much investors expect credit to loosen going forward.

Investors added that if the market dives today, it is just a nervous reaction to policy announcement delays in China and weak recoveries in the West – notably in the US employment market – and the fundamentals are still in place for a sustained mini-bull run in China.

Therefore, any large dips would be good buying opportunities, they say, with sub-2,600 territory fertile hunting grounds for bargains.

Also, recent profit-taking on the nearly year-old ChiNext board in Shenzhen, China’s equivalent of the Nasdaq, is making the likelihood of bubbles on the notoriously P/E-high Growth Enterprise Market (GEM) far less likely, and ChiNext will be well worth watching in the coming months.

Coal Play

Non-local coal miners in China like Singapore-listed Abterra will also benefit from pro-consolidation policy. Photo: Company

Chinese Premier Wen Jiabao’s urging of the country’s sprawling and highly fragmented coal sector to consolidate naturally gave a boost to the major players who are now officially being urged to swallow up smaller competitors to raise industry efficiency, standardize environmental practices and streamline the energy logistics supply chain.

Responding bullishly to encouraging words from the central government were Yanzhou Coal Mining Co (SHA: 600188; HK: 1171), which closed up 1.3% yesterday at 17.89 yuan, while the country’s top coal miner China Shenhua Energy Ltd (SHA: 601088; HK: 1088) added 0.5% to 23.91 yuan.

Even more impressive was Zhengzhou Coal Industry & Electric Power (SHA: 600121) which rose by its daily limit of 10% to finish at 10.82 yuan, while Qinghai Sunshiny Mining Co Ltd (SHA: 600381) added 5% to 6.04.

One non-A-share listed firm to watch out for today is China Qinfa Group Ltd (HK: 866) -- one of the country’s largest coal trading and delivery firms -- as the Guangzhou-based company is to announce its first half earnings this afternoon following recent indications that its bottom line could jump tenfold.

Mined materials peers also have been on a mini-run of late as earnings at both ferrous and non-ferrous metals firms have been flowing in lately mostly above expectations.

China’s top non-ferrous firm Jiangxi Copper Ltd (SHA: 600362; HK: 358) added 2.1% yesterday to 29.09 yuan following an earnings surprise on the upside while the country’s top aluminum firm Chalco (SHA: 601600; HK: 2600) gained 0.5% to 10.05 yuan.

Analysts added that blue chip coal shares are likely to see more upside as the consolidation and supportive policy plays out, while steel and non-ferrous firms will also climb up on generally healthy earnings.

Pharmaceutical Panacea?

Drugmakers and medical equipment firms have been unsung heroes of the two month-old sustained market climb, albeit small-scale contributors on a share capitalization basis.

Analysts say that increased M&A activity, gradually enhanced brand building campaigns and slight – but still cripplingly slow – progress on intellectual property rights protection, is helping some of the more innovative, efficient and market savvy firms see respectable returns.

Nantong Jinghua Pharma (SZA: 002349), producer of both traditional Chinese medicines (TCM) and western painkillers/antibiotics, jumped nearly 9% yesterday to 32.89 yuan, while Hisoar Pharma (SZA: 002099) added 8.1% to 24.66.

Read this week's: CHINA SHARES: A Shares Weaker On Property, Oil, US Woes 

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