Cyclical stocks lead Chinese gains at start of 2018 amid bets on economic recovery
Energy producers, developers and banks led the charge in mainland markets at the start of the new year, having lagged in the second half of 2017
Chinese companies that rely on the strength of the economy for their main business revenues staged a comeback on the first day of trading in 2018, as traders bet that an economic recovery will continue and boost the sector’s valuations.
Energy producers, property developers and banks led the charge among these cyclical companies in mainland markets at the start of the new year, with Shanxi Lu’an Environmental Energy Development, Gemdale and Bank of Ningbo rising almost 4 per cent. Citic Securities, the nation’s biggest listed brokerage, recommended buying banking and property stocks, predicting the ratio of non-performing loans will decrease and home sales by major developers will exceed expectations this month.
A strong reading of China’s purchasing managers’ index for the manufacturing industry, and relatively low valuations have boosted the risk appetite for cyclical stocks among investors, said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai.
“The market’s risk appetite is rising,” he said. “The PMI is pretty good so the market is eyeing a new round of economic recovery, and the valuations of the cyclical stocks are not stretched, so the rise in the sector has fundamental support.”
The PMI for China’s manufacturing industry was at 51.6 for December, above the dividing line of 50 between contraction and expansion for a 17th straight month, according to data released by the statistics bureau on the last day of 2017.
Cyclical stocks were the underperformers relative to the broader market in the second half of last year. Gains in financial and energy stocks lagged those on the CSI 300 Index during that period, as investors snapped up consumer companies including makers of baijiu to seek hedges against the uncertainty of economic growth.
