Experts: Index moves won't hurt A shares
Recent fluctuations in major A-share indexes caused by rising inflation concerns in overseas markets and stock rotations will not impair the upward momentum of the A-share market, experts said.
The benchmark Shanghai Composite Index shed 1.82 percent to close at 3359.29 points on Tuesday while the Shenzhen Component Index slid 2.8 percent to close at 13475.72 points. The technology-focused ChiNext in Shenzhen slumped 3.5 percent.
Among the 3,700-plus A-share companies, nearly 100 companies saw their prices plunge by over 9 percent. On the other hand, A-share listed port and tourism companies reported an average increase of over 1.8 percent.
In the United States, however, it has been a divergent story. The Dow Jones Industrial Average has to date advanced by 3.91 percent while the technology-heavy Nasdaq 100 fell by 4.57 percent.
Huang Haizhou, managing director of China International Capital Corp, said the recent fluctuations in the major overseas markets, combined with the rising 10-year US Treasury bond yields, have triggered concerns about liquidity tightening all over the world. These external factors, and not investors' concern over a changing environment in the Chinese market, have led to the recent adjustment in the A-share indexes, said experts.
Analysts from Guotai Junan Securities wrote in a note that companies which were highly pursued by institutional investors last year saw major price fluctuations recently, which can be partly attributed to the expectations of rising inflation in the overseas markets and investors' worry over the discount rate. As economy further recovers, more companies, which were not favored by institutions, will see their profitability and valuations improve.
International institutions still hold a positive outlook on the A-share market. The net northbound investment－trading flows into the A-share market from overseas investors using the stock connect program between Shanghai, Shenzhen and Hong Kong－reached 2 billion yuan ($307 million) on Tuesday. UBS estimated that at least 200 billion yuan of foreign capital will flow into the A-share market this year.
Wendy Liu, head of China Strategy at UBS Global Research, said during a news conference on Monday that China's blue chip-focused CSI 300 Index is likely to hit 6100 points by the end of this year, which will be more than 20 percent up from the readings as of Tuesday.
The A-share market will likely be buoyed as more household savings are expected in the stock market and cyclical recovery has already taken shape in China in the third quarter of last year. Meanwhile, the Chinese government's resolution to carry out overall innovation, which has been written into the 14th Five-Year Plan (2021-25) draft, will also grow into a key driving force of the A-share market, she said.