Bats use sonar to find their quarry. Investors, however, yearn for better visibility. Photo: Sangdu

Translated by Andrew Vanburen from a Chinese-language piece in Securities Daily

UNLESS YOU'RE A BAT with ultrasonic hearing, it's best not to go blind into any activity.

So here some clues on how to survive, and maybe even thrive, in China's capital markets this half.

During a Summer Investment Seminar held this week by Shenyin Wanguo, the brokerage offered insights into how investors in China could best negotiate the economic and financial challenges plaguing the market and weighing on sentiment.

The research house emphasized that good things would come to those who patiently waited out the current downturn, and advised investors to not jump the gun and leap back in too soon as the bear had a bit more bellow in its belly.

It said that even some of the healthier counters out there still had some steam to let off, and investors with sufficient patience to await concrete first half results from the bulk of firms would end up on top by year end.

That being said, the brokerage was particularly bullish on brokerages going forward.

Other than promoting its own industry, Shenyin Wanguo was also upbeat on the prospects for insurers and environmental theme stocks this half in particular.

It was also closely monitoring any major moves by local governments to spur on consolidation in a variety of sectors via mergers and acquisitions, which would be in line with a long-standing wish from Beijing to reduce the number of players in a wide range of industries in order to phase out laggards and improve both quality and efficiency.

Shenyin Wanguo is closely watching for any land reforms that might impact property developers one way or the other.
Photo: Andrew Vanburen

The progress of numerous regional land reform campaigns was also prominent on Shenyin Wanguo’s radar screen, with the results in several provinces and cities to potentially have a huge impact on the fates of listed property developers and industrial firms.

The brokerage added that in the first half of the year, investors were pulled in several directions by feelings of anticipatory excitement over a possible rebound as well as a flood of market rumors that did little to sustain individual valuations over the long haul.

In short, trust was in short supply and at a premium.

It didn’t help matters that there were a few small stutter steps toward recovery in both share prices and the national economy last half which ended up amounting to very little in the end.

One of the only bright spots was the seeming willingness by Beijing to stimulate growth via stimuli and looser monetary policy, with even more credit maneuvers likely this half from the People’s Bank of China.

Currently, it can be said that the A-share markets are slowly gearing up for their third bounceback of the year.

Overall, the interim results reported to date are nearly all below expectations but consumer spending and the retail goods covered under umbrella firms listed in Shanghai and Shenzhen are doing moderately well in a lower-than-anticipated inflationary environment.

Three things to note are that even if the third and fourth quarter economic performance surprises on the upside, there is simply not enough momentum in place to allow it to surge ahead at a sufficient pace to lift the overall market appreciably.

China shares haven't exactly overwhelmed of late

Secondly, the brokerage believes that trading turnover in the current half will be even more sluggish, with the likelihood of sideline watching much higher.

Finally, it sees the 2,050 level as a possible bottom for the benchmark Shanghai Composite Index, though previous appraisals made in the first half later proved to be unreliable, given market volatility.

So in short, Shenyin is advising investors to keep an eye on several heated kettles at once – local action on industry consolidation and land reform, interim earnings reports, additional rate action from Beijing as well as soon-to-be-released July economic data.

If investors can manage all this, while simultaneously monitoring individual counters for unappreciated value, they should do alright this half.

See also:

HEAT STROKE: China’s Erratic Summer IPOs

OLD MAN, NEW MONEY: Meet China’s Nearly Century-Old Investor

Five China Sectors About To Get Hot

BUCKING TREND: China Shares Ready For Rebound?

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