A-share market poised for sustained bull run

The A-share market's recent upswing, which has been propelled by rising market liquidity and investor sentiment, is likely to continue in the following months on long-term capital inflow and improved fundamentals, said experts.

Their comments came after the market rally persisted, with the benchmark Shanghai Composite Index gaining 0.34 percent to close at 3647.55 points on Monday, the highest level so far this year. This has been its sixth consecutive trading day of gains in August. The combined trading value at the Shanghai and Shenzhen bourses approached 1.83 trillion yuan ($250 billion), up 6.8 percent from the previous trading day.

According to Chen Gang, chief strategist at Soochow Securities, a slow bull is taking shape in the A-share market thanks to incremental capital inflow mainly contributed by exchange-traded funds, individual investors and other long-term capital.

Data from market tracker Wind Info showed that the total value of ETFs in the Chinese onshore market exceed 4.3 trillion yuan in the first half, up 16.2 percent on a yearly basis. More than 70 percent of these funds reported gains as of end-June.

Latest data disclosed by the Shanghai Stock Exchange showed that more than 1.96 million individuals opened A-share accounts in July, up 71 percent year-on-year and 19 percent higher from a month earlier.

The strong performance of the A-share market has boosted investor mood.

The Shanghai Composite Index gained 3.74 percent in July while the Shenzhen Component Index added 5.2 percent. Technology-focused ChiNext in Shenzhen jumped 8.14 percent over the past month.

According to Chen, Chinese regulators have been actively encouraging long-term capital, such as social security funds and pension funds, to step up their investment in the equity market. The Chinese central bank has introduced new types of monetary tools to build channels for the inflow of medium to long-term capital.

As deposit interest rates and the yield of wealth management products have been contracting due to lower benchmark interest rates, Chinese households' savings, which have been rising since the second half of 2021, are likely to head for equity assets, bringing in more market liquidity, he said.

He Kang, chief strategy analyst of Huatai Securities, said that the number of new stock-focused mutual fund products applying for regulators' approval has bottomed out since mid-July. These products are a major channel via which Chinese household savings are directed to the stock market.

Long-term capital will serve as another piece of the puzzle for incremental capital into the A-share market. Foreign investors are expected to return in the following months while more insurance capital is likely to flow into the market steadily, he said.

Major economic indicators have been showing signs of further recovery. The Consumer Price Index has risen in July, beating market expectations. Although flat in the past month, the Producer Price Index has seen its fall narrowed and it is expected to pick up in the following months, said He.

China's "anti-involution" efforts to create a fair competition environment have shown positive results. Industrial companies with a minimum annual sales revenue of 20 million yuan have seen their profitability improve in June. Key industries such as wind power, automobiles, logistics and animal husbandry have shown increased progress, he added.

Zou Jiangyu, a portfolio manager at BlackRock China, said that China's economic growth is expected to further recover in the second half of this year, supported by more economic stabilization policies, especially for technology innovation and industrial upgrading.

BlackRock holds a positive outlook on Chinese assets related to artificial intelligence, especially regarding computing and application. Investment opportunities can also be found among high-end manufacturing, equipment and materials, as well as Chinese companies' internationalization and exports of quality products, he added.