While most investors have had to make many difficult decisions over the past 12 months due to the multiple complexities and uncertainties in the global market, there is finally light at the end of the tunnel, according to most industry experts and analysts, who hold a cautiously optimistic outlook on the A-share market.
In a 2023 forecast for the Chinese capital market, Xun Yugen, chief economist at Haitong Securities, compared A-share performance to "the rising sun". His relative optimism is initially based on the bottoming out signs both in the country's economic fundamentals and the stock market.
He thus predicts that A-share companies are likely to report double-digit profit growth amid continued capital inflow in the upcoming 12 months. Companies related to the digital economy and low-carbon economy, as well as those from the medical and consumer sectors, may generate the most opportunities.
The year 2022 has been difficult for most investors in the Chinese market. As of Tuesday, the benchmark Shanghai Composite Index had shed 14.8 percent to 3095.57 points so far this year and touched 2863 points back in late April. Against the stronger US dollar as a result of rounds of interest rate hikes adopted by the US Federal Reserve this year, the renminbi's exchange rate against the greenback also went through significant fluctuations, especially during the second half of 2022 — sliding to 7.3 in late October.
Du Changyong, founding partner of Shanghai-based private equity firm Wisdomshire Asset Management and an industry expert with 30 years of investment experience, has also felt the winter chill. While holding a conservative attitude toward China's economic growth in 2023, his outlook for the capital market is not gloomy.
"The current market valuation has already reflected numerous negative impacts. Investors should be more optimistic at this moment, as the indexes have already declined more than enough," he said during a public speech in late November.
However, structural bullish performance, rather than an overall bull run, will be the theme next year, he added. Investors should build more tolerance over market volatility and avoid diving into overheated industries, he suggested.
Zhang Xia, chief strategist at China Merchants Securities, said that banking and property industries are likely to rise in the short run thanks to economic recovery, which is expected to be increasingly noticeable in the first half of 2023. Once economic growth stabilizes, high-end manufacturing, medicine, new energy, artificial intelligence and military equipment, which address the country's call for technology independence and security in industrial and supply chains, will churn out more investment opportunities.
The property sector, which not only has served as a major economic driver for China over the past few years, but also comprises a significant part of the A-share market, will recover in 2023, which has become a consensus among industry observers.
Xiong Yi, chief economist at Deutsche Bank China, said that China's further optimization in epidemic control policies to be anticipated next year will stimulate homebuyer demand. This will help the property market strongly rebound in the second half of 2023 when such optimization may be accelerated.
Hyomi Jie, a portfolio manager at Fidelity International, said that the Chinese property sector may "surprise" the market with a buoyant performance next year as the government relaxes the related controls. Homebuying demand may be thus pushed up, which will exert a positive chain effect on the consumption end in general, he said.
Another consensus reached by most experts is that exposure to Chinese equities is of great importance to global investors in 2023 to diversify their investment portfolios.
As explained by analysts from Vanguard Investment Strategy Group, the extremely high market valuation of US stocks in 2021 did not last long. Even their current valuation has not truly reflected the US economic situation. Emerging markets, including China, will become an important part of global investors' stock portfolios in terms of diversification.
Jie from Fidelity International said that China will be staying at a more advantageous position in the short run when most developed countries are still confronting challenges such as inflation, the energy crisis and economic recession.
The supportive policies introduced by the Chinese central bank will help the country to realize relatively healthier economic growth. This has made Chinese equities more attractive for investors looking for diversifying opportunities globally, he added.