By Zhang Shidong
Chinese stocks are likely to tread water in the second half as investors refrain from big bets amid a lack of fresh catalysts, according to the nation鈥檚 top-ranked brokerages.
A deflationary trend and sluggish earnings growth will continue to weigh on yuan-denominated stocks, but state intervention and an economic recovery 鈥 albeit weak 鈥 will put a floor under the market, according to GF Securities, Industrial Securities and Shenwan Hongyuan Group.
China鈥檚 benchmark CSI 300 Index barely budged in the first half, as investors waited for more policy signals from Beijing to bolster growth and watched the trade talks with the US for positive signs. Meanwhile, the economic recovery was uneven, with retail sales rebounding on a trade-in programme for household appliances, exports holding up on front-loading, and woes lingering in the property market. The yield on the 10-year government bond fell to a record low of 1.597 per cent in January on expectations of interest-rate cuts by the central bank.
鈥淲hile borrowing costs are falling and liquidity is ample, whether it can trigger a valuation expansion still depends on the fundamentals,鈥 said Liu Chenming, an analyst at GF Securities in Beijing. 鈥淔or now, stocks are fairly valued.鈥
The caution contrasts with global investment banks鈥 relatively upbeat views on Hong Kong stocks, which they said would benefit from interest-rate reductions by the Federal Reserve and a reallocation of capital seeking to diversify away from US assets. The Hang Seng Index rose 20 per cent in the first half.
GF Securities, Industrial Securities and Shenwan Hongyuan were ranked among mainland China鈥檚 top four brokerages in the equity strategy category by New Fortune magazine last year.
While China鈥檚 broader market could be stuck in rangebound trading in the second half, event-driven thematic investments could emerge from areas such as artificial intelligence (AI) and aerospace, according to first-ranked GF Securities.
The Guangzhou-based brokerage advised investors to shun cyclical companies 鈥 those whose earnings performance was closely linked to the strength of the economy. The decline in producer prices showed no signs of ending, and government stimulus measures had underwhelmed, it said.
Second-ranked Industrial Securities said in a strategy report that Chinese stocks would hold up on policy support for the economy and the capital market. The brokerage liked defence, technology and commodity producers, which it said would benefit from Beijing鈥檚 military parade in September, the AI boom and soaring demand for electricity during the summer, respectively.
Earnings growth for mainland-listed companies was expected to remain low at 4.6 per cent this year, and a turning point might not come until 2026, said Shenwan Hongyuan, which finished fourth in the New Fortune ranking.
Still, some silver linings were surfacing for the stock market, as the low-yielding environment and increased focus on shareholder returns could boost the appeal of equities, said Fu Jingtao, a strategist at the Shanghai-based brokerage.
In the first half, material and financial stocks were the best-performing industry groups, with CSI 300 sub-gauges for the two sectors rising 7.3 per cent and 6.3 per cent, respectively.
State buying played an important role in stabilising the stock market. Central Huijin Investment, a unit of China鈥檚 sovereign fund, as well as the national security fund and the investment units owned by the central government, such as China Chengtong Holdings Group, all made direct stock purchases in April to counter sell-offs sparked by the Trump administration鈥檚 鈥渞eciprocal tariffs鈥.