Investing.com — Chinese stocks may still have room to rise after an impressive rally over the past three months, analysts at CICC wrote in a note, citing continued policy support and improving economic conditions.
China and its indices have rebounded by about 17% and 18%, respectively, from multi-year lows reached in early February. They were now about to enter a technical bull market from those lows.
While most sectors benefited from a combination of bargain buying and policy hopes, CICC analysts noted that the agriculture sector outperformed during the rally, as did the hard-hit real estate sector.
CICC analysts said China's economic recovery is still underway despite some recent signs of slowdown, although it still faces some challenges in the near term. Beijing has also been seen steadily providing political support for the economy, as well as further capital market reforms.
The late performance in the US and Japanese markets – which were the best performers through 2023 – has also attracted some foreign capital inflows into Chinese markets. This trend may continue in the coming months, especially amid uncertainty about the path of interest rates in both countries.
Pay attention to these three topics in Chinese markets – CICC
Three major themes are expected to feature prominently in Chinese markets as they recover this year, CICC analysts said.
First, growth-oriented technology sectors are exposed to growing industry trends, such as semiconductors and telecommunications, which have highlighted the growing interest in artificial intelligence.
Second, core asset makers – specifically lithium-ion batteries, photovoltaics and wind power – were set to recover after seeing sharp corrections in the past two years. But they were also willing to take advantage of increased political support.
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Third, CICC analysts said sectors with “thriving business operations and high earnings visibility,” namely new energy vehicles and similar commodities that benefit from global expansion.
But the Chinese economy still faces growing headwinds. This week, the US government imposed higher tariffs on the country's key emerging sectors, such as electric vehicles, pharmaceuticals and semiconductors.
The Chinese government is also facing rising debt levels, as it struggles to increase domestic liquidity conditions and promote economic recovery.
