Translated by Andrew Vanburen from a Chinese-language blog in Sinafinance
WE OFTENTIMES turn to a trusted analyst or advisor to shed more light on where our portfolio – or the general market – is headed, both in good times and in bad.
But with Chinese shares just posting their fifth consecutive upside week and with the benchmark Index flirting with the coveted 2,500 level, it might be time to get a second opinion – or eighth – on where things are headed in the near term.
This winning streak of five straight weeks hasn't been seen since November of 2010.
Yes, Chinese A- and B-shares are in vogue again, especially after the credit friendly move on Friday to lower the reserve requirement ration (RRR) by half a percentage point, the second downward adjustment in three months.
While each seasoned market watcher speaks with their own voice and steers clear of a rather safe “consensus,” the eight analysts below mainly tend to agree that not only are some sectors due for even more upside, but there is growing risk of volatility in the near term.
Galaxy Securities: Look out for bumps in road
Investor sentiment remains very buoyant which should make this another upside week.
In late afternoon trade on Monday, the benchmark Shanghai Composite hit an intraday high of 2,478.36, up 1.51%. But things cooled down a bit, with settling for a closing level of 2,447.06, up 0.30%.
There is no reason to believe that the Index couldn’t launch a serious assault on the coveted 2,500 level this week. But with indications of some firms planning to issue sub-par full-year earnings reports, watch out for sudden mini-corrections in the market.
That being said, the overall bourse continues to enjoy a bias to the upside, at least for this week.
SWS Research: Near-term adjustment demand
The exuberance of sentiment and expectations in the market of late juxtaposed against the real-time, on the ground situation is the perfect recipe for a deep correction in the Shanghai Composite. However, if this happens it is also likely to be quickly erased – in part or in whole – by an almost immediate recovery.
What is driving much of the current rally is a chorus of positive chatter from both corporate management and many analysts as well as stock-friendly policies such as the credit thawing move last week. With the promise of more vibrant liquidity on hand, investors seem to feel emboldened to make more purchases.
Last week, we saw the Index break through the 2,400 level, living proof that near-term strength is a sustainable reality. But while a protracted run attracts more investors for potential participation, it also serves as a warning sign of a possible corrections on the horizon.
Therefore, a correction is not a matter of if, but of when. And given the recentand steady five-week sustained run, the recovery from the next correction will not be written in stone.
Great Wall Securities: 2,500 level in the crosshairs
Last week, we saw China shares continue their somewhat circuitous upward climb, but there was clearly a new characteristic to the rhythm – with the ascent more jagged and pronounced.
Even more noteworthy was that daily turnover has been climbing even faster, with trading volume in Shanghai surpassing 100 billion yuan for three consecutive days.
Major buying activity by funds directing their collective gaze towards perceived “bargains” in the market or “under-appreciated” sector plays on the bourse has been the most ardent recent driver of the market proper.
Since the current run from the 2,132 level began, blue chips have been some of the most popular options – especially among pension funds and their more conservative investment leanings – and this phenomenon should continue to be a persistent driver.
Therefore, it doesn’t seem outrageous to expect 2,500 to be the next near-term attainable level.
Western Securities: Correction overdue, but 2,550 bounceback mark
The five-week winning streak for the Shanghai Composite is nothing to write off to simple good fortune. Credit is becoming a less unattainable commodity and earnings season is upon us. But the long run of winning sessions can’t last forever. So let’s just assume that a correction is on the near horizon. After all, just a short while ago many weren’t on board the idea that the 2.400 level was a realistic near-term goal.
Now that it has been breached, it has made believers out of many doubters. But given recent fluctuations and post-correction/post-selloff recoveries, it is quite likely that the almost certain downward adjustment will be followed by a robust bounceback, perhaps even charging past 2,500 in short order.
Therefore, investors should be very vigilant for signs of both – the selloff and the buyback – as both are likely to happen sooner and more vigorously than expected.
Dongwu Securities: Continued rally depends on blue chips
Last week’s behavior on the bourse was a familiar sight to those following the market this year. The Index finished higher for the week, trading turnover was on the rise and sentiment seemed generally upbeat – and foreign funds have begun playing a bigger role in the rally.
From a technical viewpoint, the Index has already broken through its six-month moving average and there is a good possibility that the Shanghai Composite will continue its ascent going forward.
However, the limiting factor to a continued rally in the market is coming down the whether or not blue chip counters in property, banking, petrochemicals, non-ferrous metals, coal and brokerages can join the party in earnest.
Citic Securities: Seven winning weeks within sight
Stock markets around the world have generally been buoyant during much of the new Year of the Dragon.
And while a correction is likely imminent for many offshore markets, there is reason to be optimistic that China’s A-share bourses could record seven consecutive weeks of gains as we are currently beginning the sixth winning week.
We already got off to a good start, with the benchmark Index adding 0.30% today (Monday).
Cinda Securities: Bull run on steady course
From a technical standpoint, if the benchmark Index breeches the 2,500 level, then we’ve arrived in bullish territory rather than just the market taking advantage of upticks in the Shanghai Composite on the back of daily upside-trending volatility.
Recently, 2,400 was generally considered safe ground and offering positive support. But now it seems like 2,500 is the new target and there isn’t much resistance to be found to this new objective.
Dongxing Securities: Easier credit easing selloff fears
Until a week, ago, most market watchers expected a major correction to the nearly five weeks of gains seen in A-shares and B-shares.
But with the sudden and generally unexpected reserve requirement ratio downtick of five basis points, that possibility has been lessened with potentially more cash in investors’ hands chasing more shares.
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