The balance of margin trading in Shanghai and Shenzhen stock markets rose on the whole since October. On Monday (Nov.21), the balance of margin trading increased by another 6.128 billion yuan to 950.034 billion yuan, above 950 billion yuan again after nearly 10 months. Much of the capital flows to large-cap blue chips with multiple stocks in infrastructure, finance and non-ferrous metals sectors seeing significant growth in the balance of margin trading.
Wind data suggests that based on industries classified by the China Securities Regulatory Commission (CSRC), the construction industry sees the fastest growth in the balance of margin trading in November. As of Monday, the industry’s balance of margin trading recorded 34.535 billion yuan, 12.64 percent higher than it was in end October. Infrastructure-related central state-owned enterprises (SOEs), represented by listed companies whose company name start with “China”, attract great attention of investors involved in margin trading. To date, the net buying of China State Construction Engineering Corporation Limited (601668.SH) through margin trading hit 1.803 billion yuan in November, ranking top among nearly 900 stocks involved in margin trading and stock lending. The net buying of multiple infrastructure-related stocks, such as China Railway Erju Co., Ltd. (600528.SH), China Communications Construction Company Limited (601800.SH) and China Gezhouba Group Company Limited (600068.SH), through margin trading also hit above 200 million yuan in November, ranking top 50.
Rapid growth of the balance of margin trading is directly translated into market performance of individual stocks. The construction industry surged 12.11 percent on the whole since November, far higher than that of other industries. The stock price of China State Construction Engineering Corporation has moved up 26.04 percent in November. Noticeably, the stock’s balance of margin trading rose to 5.801 billion yuan on Monday, while the last time when the figure was above 5.8 billion yuan was on Jan. 4. Though the stock index has not reached its high set at early 2016, the balance of margin trading of some stocks like China State Construction Engineering Corporation has rose to a high level in the year.
Guotai Junan Securities held that historically, the valuation of infrastructure-related blue chips averages to 6-35 times. Current stock prices represent a valuation around 13 times in 2016 and around 10 times in 2018, still low when compared with past figures. As to performance, the growth of orders gained by infrastructure-related blue chips in the first three quarters of 2016 greatly outstrips that of 2015 and the profitability is also the best ever. Along with the implementation of the “Belt and Road” initiatives and Public-Private-Partnership as well as the acceleration of SOEs reform, orders obtained by infrastructure-related blue chips might beat expectation. In addition, AnBang Asset Management Co., Ltd. purchased shares of China State Construction Engineering through secondary market acquisition to five percent limit last week, setting a precedent in the insurance industry and resulting in demonstration effect.
The financial industry is also greatly favored. 7 of the top 20 stocks in terms of net buying through margin trading all come from the securities sector. The net buying of Citic Securities Company Limited (600030.SH), Western Securities Co., Ltd. (002673.SZ), Founder Securities Co., Ltd. (601901.SH) and Guoyuan Securities Company Limited (000728.SZ) through margin trading all hit above 600 million yuan. In addition, the strong performance of insurance sector on Monday also attracted capital’s attention. Ping An Insurance (Group) Company of China, Ltd. (601318.SH) saw a net buying of 304 million yuan through margin trading on Monday, setting a new high in terms of its single-day growth in margin trading in nearly 7 months.
In contrast with the construction industry, the financial industry posted stable market performance in November, posting a growth of 4.14 percent from early November and almost keeping pace with the growth of the stock index.
Some institutions are rosy about the market performance of non-banking financial sector at year end. According to Dongxing Securities, past data shows that stocks related to securities companies usually stage outstanding performance in Q4. Since securities stocks saw stagnant prices earlier and institutions made no heavy investment in them, securities stocks might see investment opportunities in end 2016.
Guotai Junan Securities pointed out that the insurance industry sees strong expectation on the improving fundamentals of investment and debts. On one hand, gradually stabilizing economy, steadily increasing interest rate curve and enhancing external environment make the recovery of investment in insurance sector possible. On the other hand, the settlement rates of universal life insurances provided by large companies have been lowered. In the future, clearer signs will be shown that the debt cost of the whole industry is declining. The valuation of the insurance sector is low on the whole. Q3 reports suggest that the insurance industry is greatly underweighted by institutions. Based on aforesaid factors, importance should be attached to investment opportunities in the insurance sector.
Translated by Jennifer
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