Cement and building material plays were buoyed by Beijing's plan to spend 150 billion usd on infrastructure projects.
Photo: Andrew Vanburen

Translated by Andrew Vanburen from a Chinese-language piece in Sinafinance

LAST WEEK'S MARKET FLURRY pushed Chinese stocks up nearly 4%, helping make up for months of losses.

To help put the mini recovery in context, four market watchers were asked where they expect shares to head.

Galaxy Securities said the recent and sudden sharp recovery in China’s capital markets was long expected given the depressed state of share prices for an extended period.

“It is an upsurge, to be sure, but it’s not accurate to call it a rebound or a sustainable recovery,” Galaxy said.

The research house added that stimulus measures – whether real or implied – in the US and Europe were chiefly behind the recent run, and Beijing’s following suit with a major domestic spending push of its own helped matters along.

“Whether market forces rather than government intervention can propel the rally forward is the question. If it is merely more stimulus alone then an extended recovery is less likely.”

Shenyin Wanguo Securities said that before the recent bounce, the benchmark Shanghai Composite Index was down around 20% from year-earlier levels.

Therefore, it echoed Galaxy’s sentiment that it was only a matter of time before investors rushed back in to stock up on bargain shares.

And despite the nearly across the board rise for all sectors, investors should keep a particular lookout for counters likely to benefit from the just-announced series of infrastructure projects worth some 150 billion usd.

Chinese shares have been waiting for a boost for months

Furthermore, the beginning of the Autumn season is typically a strong period for share prices which makes Beijing’s announcement all the more auspicious in terms of timing.

West Securities said investors should be more concerned about daily trading volumes than the overall direction of the benchmark index.

“Whether or not intraday turnover can sustain the current run is the question everyone should be asking themselves,” the brokerage said.

It said that current economic indicators still have some downside potential, with inflation once again creeping into the picture to become yet another worrisome trend.

This sense that things will likely get worse before they get better is keeping a lid on trading turnover potential, and thus limiting the capacity for a sustained bull run.

“It also remains to be seen if only the severely undervalued counters and those stocks seen benefiting from the new spending stimulus will be the sole beneficiaries, or whether the entire market will benefit.”

The brokerage added that breaking past the 10-month moving average should be a near term target.

Minsheng Securities said the recent bounce in the Shanghai Composite Index was encouraging, but “not large enough nor possessing enough staying power to propel a sustained climb.”

The high of 2,145 points reached last week came very close to the 60-day moving average.

“A lot of the rally was brought on by sudden interest in cement, building materials and high-speed railway themes – all underpriced of late and all getting a boost from the infrastructure project announcement.

“If these sectors can stay hot, they can help prolong the rally.”

See also:

DUDS NO DUDS: What PRC Sectors Are Tops With Funds?

XTEP: Overperforming In Overcrowded, Overstocked PRC Sportswear

TWO LEFT FEET: China Sneaker Play Li Ning Sees Dire Year

Houses Hike XTEP To ‘Outperform’, 'Buy'; GIORDANO Target 15% Upside

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