Overseas investors optimistic about China’s A-share market in the mid-, long-term

Overseas investors are broadly optimistic about the mid- and long-term trend of China's A-share market given the relatively lower valuation and limited downward risks, reported Securities Daily on Thursday.

The more detailed and heftier policy incentives in China are expected to help rev up the economy, stabilize the growth paces and revive confidence of investors, Liu Jingjin, chief China stock strategist of Goldman Sachs, told the newspaper.

By Wednesday, China's A-share market has showed signs for a relatively independent trend barely affected by the continued downturn on overseas stock markets and rebounded about 6.81 percent since the lows on April 27.

Liu attributed the recently uptrend in A-share market to three key favorable factors: the policy signals, the low valuation of A-shares and the capital market reform in process in China. 

As he held, meetings convened by Chinese regulators on March 16 and April 29 both pointed to a policy environment helpful for investors to focus not on the short-term performance but more on the fundamental and long-term factors.

Currently, the average price earnings (PE) ratio on China's A-share market is at around 11, lower than the around 18 average PE ratio on the U.S. stock market, hinting still large room of further increases in valuation on A-share market.

Moreover, the ongoing capital market reform was also an engine driving the recent rebounding trend on A-share market, said Liu, adding that the registration-based initial public offering (IPO) reform, introduction of more long-term investors, encouraged value investment and other reform measures all boosted development of A-share market.

Zhang Jun, chief economist with Morgan Stanley Securities (China) Co., Ltd., said that China's preset growth stabilizing policies, relatively high certainty in economic fundamental and expected rebound in the third quarter were in sharp contrast with the likely weakening of overseas economy in the second half of this year and supported the A-share market to be resilient.

Together with the downward corrections, China's A-share market now boasts more reasonable valuation and mid- and long-term investment value, according to Zhang.

Statistics with Wind Information showed that banking, materials and capital goods sectors were the three favored sectors with more than 10 billion yuan net inflows of northbound capital by May 10 this year. The three sectors hailed respectively 21.457 billion yuan, 15.076 billion yuan and 11.797 billion yuan of northbound capital influxes. Northbound capital is capital flow into the Chinese mainland stock market via the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connect programs.

This year, net inflows contributed by portfolio and long-term investors continued, indicating that overseas investors remained optimistic about the long-term investment value of A-shares and were confident in the long-term growth prospects of China's economy, said Wang Jianjun, deputy head with China Securities Regulatory Commission on May 10.