Stocks pare losses on hopes of supportive policies

Equities pared losses on the A-share market on Wednesday even as most of the other Asian bourses exhibited a mixed trend on concerns about the ongoing trade dispute between China and the United States.

Though the benchmark indexes in Shanghai and Shenzhen had fallen sharply on Monday after US President Donald Trump threatened to increase tariffs on Chinese imports, sentiment improved on reports of further supportive policies and better economic indicators for April.

Japan's Nikkei 225 index declined 1.46 percent on Wednesday, the third consecutive daily decrease after the US announcement, while the KOSPI index in the Republic of Korea slipped by 0.41 percent.

In the US, the S&P 500 index and Nasdaq shed 1.65 percent and 1.96 percent respectively on Tuesday, which were both the largest daily decreases since March 22. The Dow Jones index dropped 1.79 percent, which was the most significant daily decrease since Jan 3.

In Germany, the DAX 30 index dropped by 1.58 percent on Tuesday, while the FTSE 100 index in the United Kingdom dipped by 1.63 percent.

The benchmark Shanghai Composite Index and Shenzhen Component Index plunged 5.58 percent and 7.56 percent respectively on Monday. But both of them reported gains the next trading day. Although the Shanghai Composite Index dropped 1.12 percent and the Shenzhen index by 0.96 percent on Wednesday, more than 1,600 of the 3,500 listed companies reported intraday gains.

Wang Hanfeng, chief strategist at China International Capital Corp, said the benchmark indexes are not likely to touch the lowest levels seen last year despite mounting external uncertainties as a number of supportive policies are in place.

The Monday market slide was mostly emotional, due to the US tariff threat, said Yang Delong, chief economist of First Seafront Fund, a Shenzhen-based private equity firm. Once the market returned to normalcy, companies with better fundamentals, such as the consumption-related companies, led the price rally. Securities firms, which are market indicators, were the most affected stocks on Monday. Once they recovered, the market also saw its bounce returning, he said.

Against a broader backdrop, there are a number of positive messages for the market in May, said Yang. The macroeconomy is showing signs of a turnaround, with the first-quarter GDP growth rate coming in at 6.4 percent. Blue-chip A-share companies also came in with stronger quarterly performances.

Sentiment was also buoyed after the People's Bank of China, the central bank, cut the reserve requirement ratio for banks on Monday to release 280 billion yuan ($41.4 billion) to small and medium-sized banks. This will fuel the further development of micro and small-sized enterprises, and help further stabilize the stock market, he added.

"The market will continue to be on an upward trajectory despite some fluctuations in the long run," said Yang.

Gao Ting, head of China Strategy at UBS Securities, still holds a positive outlook for the A-share companies' performance this year. The A-share listed companies are likely to see their profit grow by 7.3 percent on average this year while the profit growth rate for nonfinancial public companies will come in at 6.8 percent, he said.