A-share market recovery expected

Despite external headwinds weighing on global investor sentiment, the A-share market is showing signs of recovery after recent corrections, buoyed by improving corporate profitability, strengthening economic fundamentals and the robust growth of strategic emerging industries, said experts.

The A-share market has been under pressure since Sept 23, before the National Day holiday, showing the most significant adjustment on Sept 28 when the benchmark Shanghai Composite Index shed 1.67 percent and ChiNext in Shenzhen fell 4.53 percent. But the market rebounded slightly the following day, with the Shanghai index up 0.18 percent and the Shenzhen Component Index closing 0.34 percent higher.

Experts from China International Capital Corp Ltd explained that the recent A-share market jitters can be largely attributed to external reasons, including the geopolitical tensions in the Middle East resulting in higher oil prices and concerns over elevated inflation, the US 10-year treasury yield hitting the highest level since 2007, and the fact that market expectations of another interest rate hike in October stood above 70 percent in late September. But this has cooled down to 20 percent when October unfolded.

But these factors' impact on the A-share market is largely temporary. China's economic fundamentals and the mid to long-term growth logic remain unchanged, they added.

According to the National Bureau of Statistics, profitability of industrial companies with a minimum annual sales revenue of 20 million yuan ($2.98 million) each surged 15.7 percent year-on-year over the first eight months of the year. Profits of the electronics sector more than doubled, fueled by the accelerated application and rising demand of emerging technologies such as artificial intelligence, said Yu Weining, chief statistician at the NBS' department of industrial statistics.

The shift from old to new growth engines amid the ongoing optimization of China's economic structure can be proven by the improving corporate profitability, said Tian Lihui, a finance professor at Nankai University.

Technology innovation, strengths in manufacturing, resilient exports, rising prices of resources and the active financial market have contributed to the recovery of businesses, he said.

Xia Fanjie, strategist of China Securities, said that market fluctuations can be considered as calendar effects. Ever since 2016, the Shanghai index has fallen in the week before the National Day holiday 87.5 percent of the time, with an average decline of 1.1 percent. In the week after the holiday, the index rose 62.5 percent of the time, with an average gain of 1.3 percent. The years of 2018 and 2024 were the only two exceptions due to heightened market volatility, he said.

With an accommodative domestic interest rate environment and a stable renminbi exchange rate, the market is directing its focus to earnings-driven fundamentals, opening a window for capital to flow back into high-growth sectors, said Xia.

Chen Guo, chief strategist of Eastmoney Securities, said the A-share market is likely to stabilize after digesting the recent external uncertainties. Investors can actively look for opportunities afterward. Assets generating stable dividends are one good choice. The undervalued high-quality blue chips are also worth noting. As to the growth enterprises, Chen suggested selecting those offering high overall balance of win rate and risk-reward.

Investors can keep an eye on technology companies that are able to raise prices, expand capacity and seek further technology breakthroughs, as the outlook and prosperity for AI remains strong, said experts from Founder Securities.

The A-share market sentiment is likely to recover after the National Day holiday. Against that backdrop, the third quarter earnings will become important catalyzers for the market's structural performance, said Li Zhan, chief economist for China Merchants Fund Management's research department.

Two sectors may stage better-than-expected performance, including the AI hardware industrial chain as well as the upstream resources and chemicals sector, which benefit from rising prices, he said.

shijing@chinadaily.com.cn