Stocks rise as investors bullish on recovery hopes

Equities posted their best gains in a week on Wednesday on the A-share market as sentiment stabilized and confidence about China's economic recovery and development strengthened.

The benchmark Shanghai Composite Index rose by 2.06 percent to 3294.55 points, while the Shenzhen Component Index rose by 3.12 percent to 13,557.44 points. The technology-focused ChiNext Index rose by 3.78 percent to 2767.40.

Pharmaceutical companies were in the limelight on Wednesday posting average daily gains of 7.95 percent, while new material makers and securities firms saw gains of over 4 percent, according to Shanghai-based market tracker Wind Info.

Overseas investors' interest in the A-share market returned after a moderate two-week contraction. Net inflows of northbound investment－the trading volume from overseas investors using the stock connect program between Shanghai, Shenzhen and Hong Kong－topped 10.1 billion yuan ($1.4 billion) on Wednesday, crossing the 10-billion-yuan mark again after July 9.

The recovery of China's economy in the second quarter has provided enough confidence to investors. Fitch Ratings affirmed on Monday China's long-term foreign-currency issuer default rating at "A+" with a "stable outlook", supported by "the country's robust external finances, a track record of strong macroeconomic performance, and size as the world's second-largest economy".

Wang Yi, an analyst at Great Wall Securities, said: "The adjustment of major A-share indexes over the past two weeks is mainly due to the rapid increase in previous trading days. Fluctuation may still be expected in the next few weeks but the long-term perspective still remains optimistic. Technology companies and consumption companies that saw price gains in the previous months will see their valuations fall to more reasonable levels."

Miao Ze, an investment consultant from China Galaxy Securities, said there is little room for the Shanghai Composite Index to fall below 3100 points. Since the long-term outlook for the A-share market remains unchanged, investors must think thoroughly before making any moves, he said.

"The mid-to long-term perspective of the A-share market remains positive, as China's economic growth will further stabilize and companies' profitability will continue to improve. Meanwhile, overseas capital will continue to flow into the A-share market as a result of adequate liquidity globally. Investors can look for opportunities in the finance and cyclical sectors," said analysts from Pacific Securities.

Analysts from Morgan Stanley Huaxin Fund Management Co Ltd wrote in a note that Chinese people will allocate more of their household assets to equity investment in light of the low interest rate at the moment. As the market sentiment stabilizes, additional capital will continue to flow into the A-share market, which will bolster the positive, long-term outlook for the A-share market.