The A-share market will likely continue to show upward momentum this year amid the supportive policies to further buoy market liquidity and companies' improving fundamentals, said experts.
Their comments were made after the People's Bank of China, the country's central bank, announced on Tuesday that it will launch the second operation of Securities, Funds and Insurance companies Swap Facility in the near term.
The upcoming SFISF is worth at least 50 billion yuan ($6.9 billion), and has a duration of one year.
The central bank conducted its first SFISF operation on Oct 21, exchanging 50 billion yuan of assets with 20 securities brokerages, fund companies and insurers. More participants may be included for the second operation, according to the central bank.
Allowing nonbank financial institutions to use bonds or stock-based exchange-traded funds as collateral to exchange for assets with higher liquidity such as treasury bonds or central bank notes, the SFISF will provide extra liquidity in the market, said Ming Ming, chief economist at CITIC Securities.
With this novel tool, financial institutions can make stable investments and asset adjustment amid market fluctuations, helping to enhance overall stock market stability. For insurers, which have longer capital duration and larger investment scale, their long-term strategic investment capabilities can be strengthened, which will usher in more long-term capital and facilitate the high-quality development of the Chinese capital market, said Ming.
China Securities' chief strategist Chen Guo said he believes that the improving market liquidity will be even more noticeable after Chinese New Year, which falls in late January this year.
Meng Lei, China equity strategist at UBS Securities, said that the valuation of the A-share market is expected to rise in 2025, driven by a robust net capital inflow from individual investors, the continued entry of more patient capital, and the return of international investors.
A-share companies' improving profitability, lower benchmark interest rates and stronger fiscal support can be expected in 2025, which will further drive up the A-share market performance, said Meng.
According to market tracker Wind Info, the benchmark Shanghai Composite Index gained 12.67 percent in 2024. The four State-owned commercial banks, including Industrial and Commercial Bank of China, saw their respective share prices spike by over 40 percent last year.
A total of 2,222 companies reported profitability last year, accounting for 40 percent of all A-share companies. Among the top 10 companies showing the strongest profit gains, half were technology companies. Artificial intelligence chipmaker Cambricon Technology reported the biggest annual profit increase of 387.55 percent.
In its outlook for 2025, JP Morgan Asset Management showed more preference for A-share technology companies, especially those specializing in AI and renewable resources.
Companies undergoing the transition from low-end manufacturing to green and low-carbon production, as well as those that have realized self-reliance on software or hardware development, will continue to win more of their attention, said experts from JP Morgan Asset Management.
The Chinese stock market is one of the most appealing in the world, especially given the fact that its price-to-book ratio is only at around 1.4 times now, according to Zhu Liang, chief investment officer for US asset manager AllianceBernstein in China.
Past experiences indicate that the A-share market will show cumulative return of 58 percent for the upcoming two years once its price-to-book ratio comes between 1.3 and 1.5 times, he said.
Raymond Ma, global investment management company Invesco's chief investment officer for Hong Kong and the Chinese mainland, said more Chinese companies will be involved in global supply chain development. This trend will be reflected in the prices of A-share companies focusing on e-commerce, online games, home appliances and industrial development, he said.
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