A-share investors should remain patient while adjusting strategies for the second half of the year as volatility will be inevitable when benchmark indexes are clawing back, stock-market experts said on Tuesday.
Such volatility can be foreseen from the roller-coaster ride on Tuesday. The benchmark Shanghai Composite Index lost 0.6 percent in early trading only to close 0.89 percent higher, thanks to the robust 6.39 percent jump of the travel and tourism sector. A similar curve was seen for the Shenzhen Component Index on Tuesday.
Shanghai Disneyland, which has suspended operations for three months now, announced on Tuesday afternoon it is reopening on June 30. This helped buoy the A-share travel sector in particular and the market in general.
Although the A-share market has risen after bottoming out in April, investors still need to remain patient and wait for the right timing to buy afresh or book profits, analysts from China Securities wrote to their clients on Tuesday. The market will show clearer bullish signs in the third quarter as more and more supportive policies get implemented. Growth enterprises will lead the market rally by then, they wrote.
While the overall momentum is upward in the A-share market, temporary adjustment may not be avoided, with lower-than-expected profitability of A-share companies being a major factor, said Xun Yugen, chief economist at Haitong Securities.
But compared with the market nadir in April, the impact of less-than-stellar profitability may exert milder impact on the market, he said.
Investors should keep a close eye on inflation levels in overseas markets and the progress that China has made on stabilizing economic growth, experts from China International Capital Corp Ltd said.
Lin Rongxiong, chief strategist at Essence Securities, said the A-share indexes will gradually move up amid fluctuations in the second half of the year. As policies to stabilize the economy, which were introduced earlier this year, will make a bigger difference in the coming months, recovering fundamentals rather than market liquidity will drive market performance henceforth.
Investors, therefore, should look for opportunities in sectors that promise better prosperity in the future. Shares of companies in industries related to green transformation, digitalization and higher added value like new energy vehicles can be considered because such sectors are in line with the country's 14th Five-Year Plan (2021-25), he said.
The average rate of return of Chinese equities is estimated to be between 6.6 percent and 8.6 percent in the following months, higher than the maximum 5.7 percent for shares elsewhere, wrote analysts from Vanguard Investment Management in a note to clients.
However, China stocks will also show higher volatility of 24.1 percent, higher than the median volatility of 16.1 percent of stocks in other markets. Looking ahead, CICC experts suggest investors may want to consider moderately decreasing their exposure to companies related to the upstream segments of the oil and gas industries, as rising interest rates in overseas markets will affect their prices.
In the A-share market, investors can look at industries supported by stimulative policies, including "new infrastructure" and automobiles. Sectors with lower market valuation and correlated to macroeconomic volatility-power supply and public utilities-are also worth a closer look. Industries like photovoltaic and national defense, whose fundamentals are improving, are likely to present more opportunities in the second half, CICC experts said.
(Editor:Wang Su)