A-share market welcomed a good beginning during the first trading day in October after the National Day vacation. A shares have consecutively suffered the fourth monthly fall with the shade line since June, with a fluctuation over 2,000 points in Shanghai composite index. In terms of market trend in October, various brokerages issued strategy reports that the current market is experiencing a hard period of risk preference repair, still with expectation. The opportunity in A-share market is likely to exceed the risk in future two months. In respect of thematic investment, it is suggested to focus on ‘13th 5-year plan’.
Haitong Securities Company Limited (600837.SH) believed that market risk preference is likely to gradually recovery. The current market is experiencing a hard period of risk preference repair, still with expectation in October. Investors may be entangled by unsure institutional environment, decreased profits in third quarter report and RMB depreciation pressure. Haitong Securities further pointed out that the most worried thing in short period is profitable situation in the third quarter. However, a wave of listed companies lowered the profit forecasts after the middle of August, showing that the market has already expected this. In addition, policies related to ‘13th 5-year plan’, state-owned enterprises reform and etc. rebuild the market confidence towards transformation and innovation. Secondly, subtle changes occurred when shares of listed companies are bought through secondary market acquisition to the 5 percent limit by industrial capital. The attitude of industrial capital towards the stock market may reflect that in respect of major asset price comparison, stock market is increasingly attractive along with lowering interest rates. Insurance, venture capital investment and private funds have frequently bought the shares of listed companies through secondary market acquisition to the 5 percent limit since July, with industrial capital gently entering.
Industrial Securities Co., Ltd. (601377.SH) agreed with such view, and believed that the motive power for short selling periodically weakens, requiring more time to rebuild market confidence, with more opportunities when compared to risks. The market trend is likely to see in opportunities during the fluctuation in October. Firstly, it is expected to improve the margin, with rebounded risk preference, as the bearish influence weakens; secondly, stable growth policies begin to be intensified, expecting loosening financial and currency policies; thirdly, besides the second reason mentioned above, ‘lacking of capital’ is the driving force for stock market to rebound under the loosing currency background. Blue-chip stocks in A-share market are expected to become more attractive in October.
In contrast, Shenwan Hongyuan Group Co., Ltd. (000166.SZ) is more cautious. Its opinion is that A share still need a rather long period to reclaim the market’s high, since the valuation system, capital supply and demand and the recovery of market confidence all need time to improve, while the precondition is to be optimistic about the market. There are still significant downside and upside risks in the market. Risk return in October may not be higher than that in September. However, ‘Golden November’ and ‘Diamond December’ worth expecting.
Overall, a majority of securities companies suggest that there will be a strong market in the future. But they tend to be prudent in the short term. In terms of investment themes, those specified in the ‘13th 5-year plan’ are highlighted.
Shenwan Hongyuan suggests to focus on SOEs mixed ownership reform as it was push out as expected, and the concept of “Five-Faster” is also key point to be hold on to. As the Fifth Plenary Session of the 18th Communist Party of China Central Committee is approaching, close attention should be paid to sub-sectors in the ‘13th 5-year plan’ that can possibly outperform, especially those related to two-child policy. Besides, individual share with high growth, high dividend, and refinancing as well as employee stock ownership plan could be selected.
Haitong Securities also indicated that ‘13th 5-year plan’ and SOEs reform fine print can benefit to boost market confidence. Haitong Securities suggests that bullish and bearish thinking are still necessary even though the attitude toward the market is positive, and when judging a buying opportunity, the nature of the capital should not be ignored. In addition, growth stocks highlighted in the ‘13th 5-year plan’, such as manufacturing upgrading, information economy, modern services, are priorities. In terms of themes, Haitong Securities is optimistic about Greater Shanghai and universal two-child policy.
Translated by Jelly Yi and Adam Zhang
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