From Bloomberg, October 18/19:
A pivotal political gathering in Beijing this week could deliver fresh policy measures to extend China’s strongest equity rally in eight years and shore up the yuan, as investors weigh risks from escalating US trade tensions.
The Central Committee of the Communist Party will hold a four-day meeting, known as its Fourth Plenum, starting Monday to review the main themes of the 15th five-year plan. While a detailed plan will only be released in March next year, investors will scrutinize the post-meeting readout for any policy signals ahead of the meeting between President Xi Jinping and his US counterpart Donald Trump later this month.
While investor expectations seem modest, the event could help extend gains in Chinese stocks, especially in technology, solar and the consumer sector. The MSCI China Index has rallied about 30% this year, on track for the best year since 2017, driven by AI optimism.
“We expect continuity in supply-side priorities, with AI featuring more prominently under the ‘new productive forces’ banner alongside advanced manufacturing,” said Gary Tan, a fund manager at Allspring Global Investments in Singapore. “Any short-term measures to boost consumption after Golden Week would be a positive surprise, as the market is not pricing in aggressive stimulus.”
Any remarks on stabilizing the yuan or boosting its global use may also firm up market expectations the central bank will safeguard the currency against volatility triggered by trade tensions. Chinese authorities have pledged to make it easier for onshore and overseas institutions to use the yuan, according to an article by a newspaper backed by the People’s Bank of China on Friday. The yuan has strengthened more than 2% against the dollar this year.
Here are some sectors that money managers will be watching as the plenum begins:
‘Anti-Involution’
Investors will be watching for signs that the meeting may advance President Xi’s “anti-involution” campaign — a push to curb cutthroat competition and price wars. The push campaign intended to counter deflation has been in full swing for the last three months, and has bolstered stocks in sectors such as steel, solar and autos.An example of the campaign to curb overcapacity has been the temporary halts to lithium mining announced by some local authorities, which have boosted the shares of producers. Ganfeng Lithium Group Co. has more than doubled this year, while Tianqi Lithium Corp.’s Hong Kong shares have risen about 80%.
“Anti-involution is the key to profitability, and if the government places a higher emphasis on it, some of the relevant stocks can run,” said James Wang, head of China strategy at UBS Investment Bank Research in Hong Kong. Solar and lithium stocks would see the strongest rebound in case of related announcement as they are cheap or their net profit margin is low, he said....*****....Chips, Robots
Another area that may benefit from policy initiatives from the plenum is technological innovation. Beijing has been seeking to reduce dependence on foreign technology, with steps such as urging local companies to avoid using Nvidia Corp. semiconductors.China’s homegrown chipmakers have surged this year amid more demand for local suppliers, with shares of Hua Hong Semiconductor Ltd. rising 250% in Hong Kong, and those of Semiconductor Manufacturing International Corp. gaining 117%. Robot manufacturer UBTech Robotics Corp. has surged close to 123% this year after winning a number of large-scale orders....
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