Investors sanguine on A-share market

International investors are expressing a positive outlook on the A-share market, which is not only supported by improving fundamentals, but also China's continued efforts to provide easier access to overseas investors amid deepening capital market reforms.

During a news conference on Thursday, Wu Qing, chairman of the China Securities Regulatory Commission — the country's top securities watchdog — said that China will continue its capital market opening-up. Efforts will be made to further facilitate cross-border investment and financing and to elevate the appeal of the A-share market.

In specific, the qualified foreign investor mechanism will be further optimized and the various connectivity programs completed. The cross-border investment and risk management product supply will be enriched, said Wu.

China will continue to strengthen communication with international investors, advancing the completion of mechanisms addressing foreign institutions' concerns and reasonable demands. While capital markets further open up, regulatory capacity will be strengthened to safeguard market stability, he added.

By the end of last year, 866 qualified foreign institutional investors (QFII) obtained investment qualification in the A-share market. Foreign investors held about 3 trillion yuan ($410 billion) of A shares via QFII and stock connect programs, serving as an important source of capital inflow into the Chinese stock market, Wu said.

A large number of these foreign investors represent medium to long-term capital, including world-renowned sovereign wealth funds, pension funds, mutual funds and insurers, contributing to the stability of the Chinese capital market, he added.

In an interview during the World Economic Forum in Davos on Wednesday, Nicolai Tangen, CEO of Norway's $1.8 trillion sovereign wealth fund — the world's largest of its kind — suggested investors increase their holdings in China.

A recent global capital flow report released by Goldman Sachs showed that Chinese equity funds received a net inflow of $1.607 billion from Dec 12 to Jan 8.

More efforts have been made. The People's Bank of China, the nation's central bank, and other four government departments jointly issued a new guideline of 20 measures on Wednesday to advance institutional financial opening-up in eligible free trade zones.

According to the guideline, foreign financial institutions will be allowed to conduct the same new financial services as domestic players. Purchases of designated cross-border financial services will be supported. Capital inflows and outflows related to foreign investors' investments will be facilitated. The mechanism for cross-border financial data flow will be completed.

Experts from international investment management company Invesco wrote in a report on Jan 16 that more economic stimulus packages in the pipeline will become an important driver of the Chinese stock market. The huge size of the Chinese market and the low valuation of the A-share market have both pointed to a large amount of investment opportunities for investors.

Dividend payments and listed company stock buybacks, which have been rising significantly since last year, will serve as a major pillar of A-share market performance, they said.

Goldman Sachs estimates that the MSCI China Index and the benchmark CSI 300 Index will both rise 20 percent by the end of 2025. Therefore, they suggested investors be overweight on A shares and offshore Chinese equities.

Shen Yufei, chief equity asset investment officer at BlackRock China, said that the A-share market is one of his preferences for 2025, while the global market still faces many challenges this year.

A-share firms have demonstrated significant resilience when confronting challenges, which is best exemplified by the eye-catching export data released in mid-January. Against the backdrop of rising global volatility, China's outstanding export figures have shown companies' efforts to address difficulties, Shen said.

This has helped to form his optimism regarding the A-share market.

A-share tech companies and consumption-related firms providing more emotional value are worth looking at, he said.

UBS Securities China equity strategist Meng Lei suggested A-share companies further enhance the transparency of information disclosure and improve corporate governance practices such as communication with investors. Progress in these aspects will provide more confidence to overseas investors, which are already long-term and value investors in the Chinese stock market, Meng added.