Experts: Stocks to bottom out in Q3

As China heads toward an economic turnaround, investors in A shares can look forward to the stock market bottoming out in the third quarter of the year, experts said.

The benchmark Shanghai Composite Index gained 0.48 percent to close at 3,030.25 points on Tuesday, while the Shenzhen Component Index ended 0.4 percent higher. The technology-focused ChiNext in Shenzhen also climbed 0.29 percent.

The uptick followed the release of macroeconomic data by the National Bureau of Statistics on Monday.

China's total retail sales rose 3.7 percent year-on-year in May, while fixed-asset investment grew by 4 percent on a yearly basis. The added value generated by industrial companies with annual sales revenue of at least 20 million yuan ($2.8 million), each jumped 5.6 percent year-on-year in the past month.

Yang Fan, chief macroeconomic and policy analyst at CITIC Securities, said production has remained strong in China, which is reflected in the May data.

Industrial production, while undergoing a marginal slowdown, is still recovering. High-end equipment manufacturers, midstream chemical companies and nonferrous metal suppliers have shown higher growth in May. The recovery in the services sector has accelerated, she said.

While domestic demand is still weak, improvements in the consumption of home appliances and beauty products can be seen thanks to the June 18 online shopping carnival, she said.

Qin Peijing, chief strategist at CITIC Securities, said the A-share market can anticipate a turning point in the third quarter as domestic demand picks up, external effects such as foreign exchange and geopolitical tensions weaken and more fiscal and economic stimulus policies are expected in the following months.

At this point, investors can focus on A-share industry leaders showing lower volatility but providing more dividends. If more positive signals emerge as expected in the coming months, they can attach more importance to growth enterprises with better business performance, he added.

Experts from China International Capital Corp Ltd said that investor sentiment is gradually improving. Although the recovery in the A-share market since February has been bumpy, the indexes are likely to rise further once more long-term reform policies are introduced.

The A-share market's investment value is quite noticeable now after recent adjustments. Investors should not be pessimistic, they added.

Hong Hao, chief economist at GROW Investment Group, wrote in a report released on Monday that the recent rebound in April shows that "Chinese stocks can rebound without a rebound in property".

Falling property prices have been a boon to discretionary spending, he said.

Hong said China's economy is bottoming out with some upticks. Manufacturing investment has made up for a fall in property investment.

On the other hand, excess savings are coming out of bank accounts, seeking yields. When confidence improves, they will likely be allocated back to stocks, according to Hong.

Chen Guo, chief strategist of China Securities, said the latest financial and core consumer price index data are still lower than expected. The market is awaiting more powerful fiscal policies and relaxed monetary measures.

While incremental capital flow into the A-share market remains moderate at present, the electronics and semiconductor sectors may show more bullish performance amid stronger market expectations. In the short term, however, investors should be more rational while investing in these emerging sectors, by carefully choosing targets and the timing.