The photo taken on January 1, 2022 shows the morning view of Lujiazui in Shanghai, east China.
BEIJING, Nov. 20 (Xinhua) -- Some foreign institutions recently maintained an outperform stance on the future A-share market thanks to their optimism towards China's economic growth prospects.
Currently, it is a relatively suitable timing to invest in China assets given the fairly attractive valuation of A-shares and alongside the steady progress in China's capital market institutional opening up, its attractiveness to global funds is expected to improve further, said foreign institutions.
-- A-share valuation now attractive
In view of the historically low valuation of A-shares at present and rebounding corporate profitability thanks to improved economic recovery momentum, some global financial institutions such as Goldman Sachs remain optimistic about the future trend of A-shares.
Driven by growing earning per share and valuation factors, MSCI China Index and the CSI 300 Index are likely to edge up by 12 percent and 16 percent in 2024, predicted Liu Jinjin, chief China equity strategist with Goldman Sachs.
J.P. Morgan and others held a similar view, believing that China's A-share valuation stays currently at a relatively low level thus remain rather attractive to overseas investors.
Liu Mingdi, chief Asia and China equity strategist with J.P. Morgan said the overall valuation of MSCI China Index stands lower than the average historical data by 0.7 standard deviation and when the valuation is lower than the historical average by one standard deviation, a habitually big bottom arrives, especially when part of the industry leaders are expecting recovering profits.
Pu Jiangning, senior managing director and investment director for Asia at Wellington Management Company deemed that valuation of stocks in China is attractive now as their overall price to earnings ratio (P/E) is merely one third of the comparable data of the U.S. stock market.
Historical data of other countries shows that valuation of a stock market is highly inversely related to its yields in the following 10 years, which further manifests the huge potential of China's stock market, according to Pu.
-- Continuously recovering economic growth momentum expectable
Besides the appealing A-share market valuation, the expectable strengthening economic recovery momentum is also a crucial factor for foreign financial institutions to consolidate their optimism about A-share market.
As many institutions estimated, China's economy is likely to rebound on and on in 2024 because of the upsizing investment, recovering consumption and potential improvement in exports.
In 2024, investment is expected to be an important contributor to drive forward China's economy, said Shan Hui, chief China economist with Goldman Sachs, highlighting that under supports of the fiscal and financial policies, investment in infrastructure in China is likely to accelerate next year.
UBS foresaw notable growth potential in investment in new energy sector, water conservancy-related projects, transportation networks in urban agglomerations, and public utilities in China. In manufacturing sector, investment relative to green transition may keep a robust growth momentum and supply chain technology-related investment is expected to improve, according to UBS.
A report of UBS on China economy in 2024-2025 said that recovery in China's consumption and service sectors will extend and real income of residents will continue to increase and boost consumption in 2024.
In addition, improved external demands are likely to further bolster China's exports which, as widely predicted by foreign institutions, will tend to be stable in value and post recovered growth in 2024.
Economically speaking, China is still in the stage of "adolescence" with a promising future, noted Howard Marks, co-founder of Oaktree Capital Management.
-- High-level opening up in steady progress
Industry insiders also attributed foreign financial institutions' optimism over the A-share market in 2024 to China's steady institutional opening up of the capital market and improvement in cross-border investment and financing facilitation.
A recent reform of the qualified foreign institutional investor (QFII) rules was a vivid example. Previously on November 10, Chinese central bank and the State Administration of Foreign Exchange (SAFE) released the opinion-seeking rules on management of foreign institutional investors' funds for securities and futures investment in China. Under the rules, they canceled administrative requirements for QFIIs and Renminbi QFIIs (RQFIIs) to register related funds with SAFE and will not separate RMB special deposit accounts for securities transaction from those for derivatives trading any more.
The optimization of QFII and RQFII rules represented the continuity of high-level opening up in China and is likely to further improve facilitation to overseas funds' investment in China’s A-share market, said Li Qiusuo, chief domestic strategist with China International Capital Corporation.
Alongside the accelerating opening up, China's more internationalized capital market is expected to contribute more to attracting overseas institutional investors and better serving the real economy, added Li.
Yang Liu, deputy head with the Department of International Affairs with China Securities Regulatory Commission (CSRC) said that CSRC will further optimize the Stock Connect schemes, press ahead with introduction of the block trading mechanism, support inclusion of more products into the eligible investment targets of Shanghai- and Shenzhen-Hong Kong stock connect programs, enrich offshore market risk management vehicles and encourage overseas investors including QFIIs and RQFIIs to improve participation in trading on the Beijing Stock Exchange.
Market players thus expected that further broadening institutional opening up on China's capital market, increasing cross-border investment and financing facilitation and other measures in this regard will help guide more overseas institutions to invest in China.
(Edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)
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