A number of foreign investors are optimistic about A-shares, and the three major indexes closed up yesterday

National Business Daily

2024-05-29 23:07Posted on the official account of Sichuan Daily Economic News

Every reporter: Wang Yandan Every editor: Ye Feng

Recently, the A-share market has been full of twists and turns, and the Shanghai Composite Index has fluctuated between 3,100 and 3,200 points to seek direction.

After a "good start" in the week of May 27, on May 28, the three major indexes fell, and the turnover of the Shanghai and Shenzhen markets also shrank to 741.7 billion yuan. On May 29, the three major indexes collectively rebounded after turning green during the session. As of the close, the Shanghai Composite Index was reported at 3111.02 points, up 0.05%; The Shenzhen Component Index was reported at 9414.98 points, up 0.25%; The index was reported at 1811.07 points, up 0.27%. Overall, more than 2,700 stocks rose. On the disk, BC batteries, precious metals, and real estate services sectors were among the top gainers, while virtual power plants, copper high-speed connections, and black home appliances were among the top decliners.

Visual China Diagram

The reporter of "Daily Economic News" noticed that in this context, foreign investors have recently intensively sung long A shares. At the UBS media sharing conference on May 28, Wang Zonghao, head of equity strategy research at UBS China, said that the current market macro environment is close to the situation in 2015 and 2016, while the fundamentals of listed companies are better than in 2015 and 2016, and the valuation of MSCI China is only about 10.5 times, which has a lot of room for improvement. At present, the market is in the process of consolidating upward.

Three reasons to go long on Chinese assets

Wang Zonghao pointed out that the current macro environment of the A-share market has many similarities with 2015 and 2016. For example, it is also facing oversupply pressure on the macro side; Real estate-related stimulus policies have also been introduced; In the market, the "national team" entered the market after the fall.

In addition to the similarities, Wang Zonghao believes that there are three differences, one is that consumption in 2015 and 2016 was still in high growth, when the growth rate reached about 10%, higher than the current growth rate of 5%. Second, the policy in 2015 and 2016 will be stronger, such as the central bank through the PSL to put more than in 2024. Third, from a micro point of view, the financial situation of listed companies is better than that in 2015 and 2016, which is reflected in a significant decline in leverage ratio and higher cash flow. Overall, in 2016, A-shares as a whole consolidated upward, and A-shares are also currently in upward consolidation.

Wang Zonghao also said that the market has rebounded significantly since mid-to-late April, and from the perspective of trading, overseas long-term funds are one of the important forces to be long.

After long-term capital exchanges with Europe, he and his team found that overseas investors are more likely to be long Chinese assets for three reasons: first, from the bottom-up level of listed companies, especially large Internet companies, whose profits are better than expected, and EPS has not been lowered. Second, foreign investors' concerns about real estate risks have weakened, which has strengthened their confidence in returning to the Chinese market. Third, in 2023, the sector will rotate too fast, and it will be difficult to make money, and since 2024, high-performing stocks have performed better, and the stock price is more linked to fundamentals, which has enhanced the confidence of foreign investors.

Wang Zonghao believes that although foreign capital has returned to the Chinese market in April and May, the overall position of foreign capital is still low from the data. And from the perspective of valuation, MSCI China is now only about 10.5 times P/E.

"We expect EPS to grow by around 10%, and there is more room for valuation improvement as the market sees more better-than-expected EPS growth." Wang Zonghao said.

The price-performance ratio of A-shares is improving

In terms of sector allocation, Wang Zonghao suggested that, on the one hand, increase the allocation to high-dividend stocks. At present, many companies have increased their dividend rates due to policies and shareholder demands, and the 10-year Treasury bond interest rate is at a historically low position, resulting in the difference between the dividend yield and the 10-year Treasury bond yield at a historical high, which has increased the attractiveness of high-dividend stocks. On the other hand, increase the allocation of offensive positions. In the consumer sector, it is recommended to pay attention to industries/enterprises with certain room for price increase, such as beer, as well as travel-related industries. In addition, it is recommended that Internet companies that pay attention to Hong Kong stocks will be the first choice once more foreign capital returns.

It is worth mentioning that a number of foreign-funded institutions have recently been singing long A shares. Earlier, Goldman Sachs and JPMorgan Chase also expressed an optimistic outlook for A-shares.

The reporter of "Daily Economic News" noted that recently, Goldman Sachs raised the 12-month target of the MSCI China Index from 60 points to 70 points, and the 12-month target of the CSI 300 Index from 3900 points to 4100 points, maintaining an "overweight" rating on A shares.

Goldman Sachs China equity strategist Liu Jinjin said on May 24 that since April, A-shares have performed well, and many Asian funds underweight China have begun to underperform the benchmark, and investors may further increase their positions in China in the coming months based on performance pressure. If the policy objectives in the new "National Nine Articles" can be achieved, the overall valuation of A-shares will increase by 20%. If the most optimistic scenario is made, the dividend rate, repurchase rate and other indicators of A-shares reach the level of leading markets such as Europe and the United States, and A-shares will have about 40% room for revaluation.

J.P. Morgan Chief Asia and China Equity Strategist Liu Mingdi also recently pointed out that the base case expectation for the MSCI China Index is 66 points, and the base case expectation for the CSI 300 Index is 3,900 points. At present, the cost performance of A-shares is improving, many listed companies have reduced costs in the past year, profits and cash flow have improved, capital expenditure growth has declined, 2024 is a period of performance recovery, and the stability of asset prices will help the recovery continue.

National Business Daily

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