THE MASSIVE EARTHQUAKE that hit Sichuan last week was a human tragedy but analysts say it won’t be a market tragedy as well. In fact, some businesses are likely to have a lucrative role in reconstruction.
Despite the tragic temblor, the benchmark Shanghai Composite Index, the go-to barometer for A- and B-share performance in Shanghai and Shenzhen, still managed to close Friday up 2.1% to finish at 2,245, finally achieving the long-awaited goal of crawling above the one-year moving average.
From a wider perspective, China shares are up nearly 14% from the 1,949-point nadir set in early December of 2012, but down around 10% from YTD highs seen in early February.
Eye on Rebuilding: Property developers may get a post-quake boost from reconstruction orders. Photo: AgileSome might speculate that the selloffs seen in Shanghai and Shenzhen earlier this week are a manifestation of buyer’s remorse, as Friday’s upsurge in shares must share the stage with a gradually increasing casualty list from both the Sichuan earthquake and the latest bird flu outbreak in Eastern China.Looking back at the tragic quake near the same region five years ago, which claimed some 80,000 souls, China’s 2008 full-year GDP came in at 30.1 trillion yuan, with the damage costs from the Wenchuan disaster earlier that year responsible for shaving less than 3% from the total GDP or around 900 billion yuan.
As tragic as last week’s temblor was, it was far less destructive than the one half a decade earlier.
The casualty count continues to climb gradually higher, and will likely soon surpass 200, with some 10,000 injured and 1.5 million people affected by the calamity.
However, total economic losses related to the quake are not expected to surpass 10 billion yuan, or around 1% that of the massive Wenchuan quake.
Rebuilding towns, rebuilding shares
Once the sub-10 billion yuan damage cost figure is more widely known by investors with interests in the region, the overall market should get back to its recent winning ways, however humble.
Among A-shares expected to trade higher following the Ya’An earthquake are the usual suspects: building materials, concrete plays and pharmaceutical counters related to rescue, recovery and rehabilitation.
Analysts don't expect the recent Sichuan earthquake to severely shake China shares. Source: Yahoo FinanceThe fact that the national government has only been in office for a month is another upside for post-quake recovery related A-shares.
That is because the new leadership in Beijing is expected to bend over backwards to show their determination to get the quake-hit areas back up and running and on their feet as soon as possible.
One of the low points as far as popularity is concerned for the previous administration was their relatively slow response to the outbreak of SARS, bird flu and pig flu.
By contrast, the new president and premier have gone out of their way to do their best to nip the most recent outbreak of bird flu in and around Shanghai in the bud.
To wit, there hasn’t been a significant amount of selloff activity of late that can be directly correlated to the contagion.
Construction –themed A-shares have gotten a jump of late after it was revealed that several costly infrastructure projects would need replacing or rebuilding, including major roads and bridges, urban overpasses in the populous city of Chengdu and other significant transportation-related infrastructure that sustained damage during the quake.
Properly insured property plays are also expected to get a boost as they begin the process of rebuilding and/or repairing quake-damaged homes and apartment complexes.
See also:
Top China Investor Says Stocks And Guanxi A Bad Mix
