Investing.com – Chinese stocks still have room to rise after a stellar rally over the past three months, CICC analysts wrote in a note, citing continued policy support and improving economic conditions.
China and indices are up about 17% and 18%, respectively, from multi-year lows hit in early February. They were now close to entering a technical bull market from these lows.
While most sectors benefited from a combination of bargain buying and policy hopes, CICC analysts noted that the agriculture sector was the best performer during the rally, as was the hard-hit property sector.
CICC analysts said China’s economic recovery is still progressing despite some recent signs of cooling, although the country still faces some challenges in the short term. Beijing was also seen to be steadily rolling out policy support for the economy, as well as implementing more capital market reforms.
Recent sluggish performance in the US and Japanese markets, which were leaders until 2023, has also attracted some foreign capital inflows into Chinese markets. This trend may continue in the coming months, especially amid uncertainty regarding the direction of interest rates in both countries.
Watch these three themes in Chinese markets – CICC
CICC analysts said three major themes are expected to feature prominently in Chinese markets as they recover this year.
First, growth-oriented technology sectors exposed to rising industry trends, such as semiconductors and communications, which have come into the spotlight thanks to increased interest in artificial intelligence.
Second, major asset producers, especially lithium-ion battery, photovoltaic and wind producers, were expected to recover from sharp corrections over the past two years. But they also stood to benefit from increased political support.
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Third, CICC analysts said sectors with “thriving business operations and high revenue visibility,” namely new energy vehicles and similar products, are benefiting from global expansion.
But the Chinese economy still faces increasing headwinds. The US government this week imposed higher tariffs on the country’s key growth industries such as electric vehicles, drugs and semiconductors.
The Chinese government is also grappling with higher debt levels as it struggles to improve local liquidity conditions and promote economic recovery.