China may not have announced a bazooka-like stimulus at its annual parliamentary meeting last week, but it made clear which industries it will support. Beijing announced a GDP growth target of around 5% and an official budget deficit of 3%, in line with last year’s targets. Authorities have announced plans to issue “ultra-long” bonds for special projects, while hinting that they may still use other stimulus tools. “While the level of fiscal stimulus may be underwhelming and underlying property risks remain, we believe a strategic focus on nurturing new productive forces, developing the digital economy, promoting domestic consumption and continuing openness should be positive for income growth and the creation of structural opportunities in the A-share market,” HSBC China equity analysts Steven Sun and his team said in a report on Wednesday. Last week, China’s top economic planning agency said efforts to upgrade equipment would result in annual spending of more than 5 trillion yuan – about $700 billion a year in corporate capex. The Ministry of Finance said it will spend tens of billions of yuan this year to promote manufacturing and vocational education. China’s annual government work report “reiterates the high-quality development of the digital economy and specifically mentions AI+ initiatives to promote the digitalization of traditional industries,” HSBC analysts said. “We therefore believe that industries related to the digital economy will benefit, including those related to artificial intelligence servers and networking equipment, as well as software applications (AI+) such as cybersecurity,” they said. The wider market is yet to be impressed. After a volatile start to the year, the Shanghai Composite Index is up about two-thirds of a percent over the past week, with gold and energy stocks among the biggest gainers, according to Wind Information. New securities regulator Wu Qing made his first media appearance in the role on Wednesday, sending mostly “positive messages” that included strengthening investor protections, attracting long-term capital and encouraging dividend payouts, according to Laura, an equity strategist at Morgan Stanley. Wang. However, in a separate note, she said sentiment for mainland Chinese stocks, known as A-shares, had “notably eased from last week’s peak” due to a lack of announced policy support. “The MS Economics team believes that the announced fiscal package is not enough to stimulate the economy as the fiscal package remains supply-side oriented,” Wang said. ‘New productive forces’ Amid the success of Chinese-made electric vehicles and US technological limitations, Beijing is pushing for domestic technological and industrial capabilities. High-level references to Chinese President Xi Jinping have given rise to a popular political term: “new productive forces” or driving forces. In an example of how the phrase has spread around the world, last week officials in the giant city of Chongqing, home to some 32 million people, sought to demonstrate that they were prioritizing digitalization and high-tech manufacturing. They described the new “forces” as having to do with greater technological innovation, greater efficiency and greater environmental friendliness. “Policy support for the development of advanced manufacturing capabilities will lead to increased capex in related value chains such as manufacturing and the IT sector,” HSBC analysts said. Here are some of the stocks they’re picking with buy ratings: the first two are for exploring “new productive forces” and the next two are for playing on AI-generated content. All four shares are listed in Shenzhen: Inovance – As a seller of industrial automation components, Inovance should “benefit from the recovery of the discrete automation market in 2024,” HSBC analysts say. They have a price target of 83 yuan per share, implying an upside of nearly 24% from Friday’s close. Naura Tech – The chipmaker’s shares currently have just 3% upside potential compared to HSBC’s target price of 309.7 yuan based on Friday’s close. But analysts expect that “NAURA Tech will benefit from increased capex by [third-party integrated circuit-packaging and test services] thanks to our extensive product offering in modern packaging.” Innolight is a fiber optic company providing network infrastructure for cloud computing and artificial intelligence. HSBC analysts expect Innolight to increase sales of its flagship product and introduce an even better product on Friday. Shares closed about 5% above HSBC’s target price. Sanqi Entertainment – HSBC analysts expect this gaming stock could nearly double to RMB 36 per share. “We like Sanqi given its solid mini-game strength and strong sales pipeline. “The report says. However strong any industrial growth may be in the near future due to top-down policies, many analysts warn that challenges for China’s overall economy remain unresolved. “With Beijing remaining unwilling to provide much more strong incentives, we fight “What worries us most is that escalating overcapacity problems in the industrial sector may begin to force manufacturing companies to slow down both production and capital investment.” , potentially causing a sharp decline in domestic demand for credit,” the report said. “In other words, if demand for credit from the private sector continues to decline, Beijing’s obsession with fiscal prudence and deleveraging of local governments will be suicidal.” – CNBC’s Michael Bloom contributed to this report.
