Sunrise Sector: China yesterday pledged 5 trln yuan to new energy
CHINA'S A-SHARE markets, which fell by nearly 30% in the first half, have shown heavy volatility so far this month.
However, the benchmark Shanghai Composite Index has been crawling back of late and analysts say any new correction will offer the best near-term chance for bargain hunters, with investors advised to jump in at the sub-2,500 point level due to a big boost from new energy chips seen driving the market going forward.
Yesterday, China announced it would invest some five trln (TRILLION!) yuan over the next 10 years in new energy firms, i.e. cleaner generators of electricity such as wind, hydroelectric, solar and nuclear power plants.
The good news for clean energy firms prompted Deutsche Bank to initiate BUY calls on two Chinese wind power firms: China Longyuan Power Group Ltd (HK: 916), the largest wind power producer in Asia, as well as Xinjiang Goldwind Science & Technology Co (SZA: 002202), a wind turbine manufacturer based in Urumqi, Xinjiang.
Beijing said the move was meant to drastically reduce the country's dependence on coal and oil and the heavy emissions they bring in their wake.
The news sent a jolt through clean energy firms yesterday, and analysts expect listed firms engaged in wind, solar and even nuclear power to see major upside benefits from the massive capital infusion going forward, with their valuations expected to help shoo A-shares away sub-2,500 territory for quite some time.
This is in large part thanks to Beijing's restated commitment yesterday in concrete yuan terms, backed by last year's publication of the 2050 China Energy and CO2 Emissions Report, in which it was stated that China needs between 500-600 bln yuan per year to develop energy-conserving and low-carbon power generation technologies.
However, despite this major market boost in the making, analysts in the PRC press still expect one last correction and therefore are hyping the wisdom of buying into Chinese A-shares in the near term when the market dips below the psychologically-significant 2,500 point level, a watershed plateau that had been penetrated in volatile July trade but one which they say the market cannot long hold, especially now that Beijing has voiced such strong support for clean energy firms.
In a separate analysis of the sheer scale – both real and potential – of China's massive commitment to new energy industries, the country was able to attract nearly 12 bln usd in asset financing for these firms in the April-June period, an amount greater than that of the US and Europe combined, according to Bloomberg figures.
Why Today?
Analysts point in part to Wednesday's bourse performance as reason for investors to look to today's (or tomorrow's) trading session as perhaps the final "golden opportunity" to enter the A-share market for the foreseeable future.
After a topsy-turvy start to the morning session yesterday, when the five trln yuan new energy news emerged, electricity power generating firms saw a jolt of support, and helped pull the benchmark Shanghai Composite Index into near-positive territory by the close, with the indicator ultimately finishing down 0.02% on Wednesday.
Happy Days around Corner? Analysts say anything under 2,500 is fair game for bargain hunters tracking the Shanghai Composite
Trading volume in the afternoon did taper off but managed to stay around 100 bln for the entire day.
The gains over the past few days were preserved, but the market was less in the mood for another big gain yesterday, and if not for the new energy lift, the Index may have fallen rather significantly.
Although counters with exposure to "The West," i.e. China's less developed hinterlands were buoyed by government announcements yesterday pledging renewed support for their development, property and financial stocks were a drag on the market for much of the day.
The bullish market performance earlier this week saw the familiar pattern of profit-taking in the afternoon session emerge once again yesterday, but analysts expect trading today, Thursday, might mark a departure point.
They also said tech stocks in particular have shown much reluctance in adding too much too suddenly, and they are some of the most sensitive counters to valuation spikes, quickly giving it back the same day.
But they say that there is little likelihood that timidity toward valuation growth for these stocks or apprehension over tighter credit controls – especially money targeting the property market – will continue to overhang the bourse going forward, because the market has not only tested, but fully digested their impacts in July, and A shares are ready for a sustained upward trajectory.
And with yesterday's massive commitment to the new energy sector, they say that if the market dips below the watershed 2,500 point level today, it is likely to rebound quickly akin to a trampoline bounce.
See earlier: A-shares rally, flirt with 2,500 level
NextInsight
a hub for serious investors
