Mainland China’s biggest listed brokerage said on Monday an ongoing rebound in stocks will probably carry on until the end of July, as monetary policy remains accommodative globally and Beijing seeks to stabilise the market before the launch of a new technology board.
The People’s Bank of China is likely to lower the reserve requirement ratio for targeted banks mid-July, in line with cuts in interest rates by central banks globally, while financial stability tops the agenda of Chinese regulators ahead of the launch of the new Nasdaq-style board, which will host hi-tech companies, said Qin Peijing and Qiu Xiang, strategists at Citic Securities.
The Shanghai Composite Index is likely to touch this year’s high, set in April, within this period, they said. This implies a gain of as much as 8.7 per cent from the gauge’s Monday close.
The Star Market, China’s new technology and innovation board, may start trading by the end of next month, with 20 companies expected to debut simultaneously, the strategists said. Three companies seeking to list on the board have already begun road shows.
The Shanghai Composite added 0.2 per cent to 3,008.15 on Monday, rising for a sixth straight day. It has gained 6.4 per cent since a low this month, with buying sentiment further boosted after Chinese President Xi Jinping and his US counterpart, Donald Trump, agreed to meet in Japan for the G20.
The gauge remains 8 cent below this year’s high, after the White House raised tariffs on US$200 billion worth of Chinese imports and growth in the world’s second-largest economy showed signs of moderating.
Citic Securities added the rebound in stocks might be mild, as increased tariffs are set to dent corporate earnings. The combined earnings for Chinese listed companies might grow by an average of 3 per cent this year, the brokerage said. Earnings growth reached 6.9 per cent in 2018, according to Bloomberg data. The brokerage recommended buying financial stocks and growth companies engaged in the semiconductor and biopharmaceutical industries.
Citic Securities was not alone in forecasting a bounceback. Soochow Securities’ chief economist, Chen Li, also said last week the rebound will probably last until August or September, because of expectations of looser liquidity conditions and a detente in the US-China trade war.
Haitong Securities, however, said in a report on Monday the rebound will be short-lived, and that a reversal of the downward trend required a turnaround in economic data.
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This article Citic, China’s biggest listed brokerage, says rebound in stocks is likely to last until end of July first appeared on South China Morning Post