On March 16, all three major A-share indexes turned red. As of the close, the Shanghai index rose 3.48%, the Shenzhen Component Index rose 4.02% and the gem index rose 5.20%. The market believed that on that day, the financial stability and Development Commission of the State Council held a special meeting to release the expectation of steady growth, which effectively boosted market confidence.
Foreign institutions interviewed by reporters believe that with the introduction and implementation of China’s stable growth policy, it will improve the certainty of economic fundamentals and support China’s stock market in the future.
In an interview with Securities Daily, Goldman Sachs said that after analyzing the valuation and risk premium of MSCI China, it found that Chinese stocks are still very attractive. Apart from the valuation, China’s good economic growth expectations and objectives, future easing policies, the current low shareholding ratio and risk appetite of investors are obviously restrained, which are potential positive factors and will support China’s stock market in the future.
“The accelerated tightening of the Federal Reserve and the rise of geopolitical risks have led to a significant increase in risk aversion among investors. Recently, with the introduction and implementation of China’s steady growth policy and the improvement of the certainty of economic fundamentals, the risk aversion attribute of RMB assets has been further highlighted.” Zhang Jun, chief economist of Morgan Stanley Securities, told the Securities Daily that the recent policy shift of the Federal Reserve has led to the rapid narrowing of the yield of China US 10-year Treasury bonds, which will theoretically lead to obvious depreciation pressure on the RMB. However, it can be seen that the RMB exchange rate has remained stable recently and maintained a strong inflow under current and capital accounts, reflecting that foreign capital is optimistic about China’s economy and RMB assets.
Fang Dongming, China head of UBS global financial markets, said that the overall allocation demand of foreign capital for A-Shares has not changed. The correlation between A-Shares and overseas stock markets is low. Based on the need of risk diversification, foreign capital also needs to allocate a shares. Major changes took place in some industries last year, and overseas investors were worried about the predictability of investment. With the strengthening of supervision and market communication, these doubts have gradually dissipated. In the future, with the further strengthening of communication and exchange between supervision and market subjects, foreign investors’ interest in A-Shares will increase.
“It will take some time for the market to reassess the impact of geopolitical tensions and China’s strong steady growth policy.” Liu Jinjin, chief China equity strategist of Goldman Sachs, said that under the current background, keeping A-share investment consistent with the policy direction is a better strategy proved by past experience, such as investment in old and new infrastructure under the expanded fiscal policy and investment with the theme of “common prosperity”.
“China has also issued many policies at the level of increasing financial openness and improving the system, which continues to improve the connection between China’s capital market and overseas markets, and also provides a better environment for foreign capital inflows.” Zhang Jun said.
