Improved domestic sentiment, better corporate earnings to sustain growth

Shares of consumer-oriented technology and macroeconomy-sensitive companies are expected to sustain the rally on the Chinese mainland bourses, thanks to the extended policy support from the government and improved corporate earnings, experts said on Tuesday.

The A-share market edged up on Tuesday with the benchmark Shanghai Composite Index rising by 0.04 percent to 3359.75 points.

As of Tuesday, the market has risen for three consecutive sessions after the eight-day National Day holiday. The SCI has risen by 4.4 percent since the market reopened on Friday, with a 2.64 percent surge on Monday, the biggest rise in more than two months.

Experts said the rally was partly propelled by the improved investor sentiment and a series of fresh domestic policy measures.

After rolling out a high-level guideline to improve the quality of listed firms and passing a development plan for the new energy vehicle sector on Friday, China released a detailed plan to pilot new reform and opening-up measures in Shenzhen, Guangdong province, on Sunday.

"The policy support may help sustain the bullish mood in the market in the short term, especially toward Shenzhen-based financial and real estate companies and firms in the new energy vehicle industrial chain," said Yin Yue, chief market analyst with Guangdong province-based Yuekai Securities.

Expectations over more reform directions for the coming years, set to be unveiled by early November, may also underpin investor sentiment this month and catalyze investment opportunities in the financial, military, nonferrous metals and new energy sectors, Yin said.

China is expected to disclose key clues to the 14th Five-Year Plan (2021-25), the nation's social and economic development blueprint, for the next five years, after a top-level meeting scheduled for Oct 26 to 29.

Zhang Xia, chief strategist at China Merchants Securities, said improved earnings of companies after the COVID-19 epidemic have been another major driver of the market rally this month, with third-quarter earnings expected to improve on a quarterly basis.

Thanks to better earnings condition, consumer-oriented technology sectors like those related to 5G smartphones and new energy vehicles, and sectors sensitive to economic recovery like home appliances and building materials may lead the market this month, Zhang said.

Experts also expect the new guideline to improve the quality of listed firms will help cement the foundation for a long-term, healthy development of the market.

The guideline, released by the State Council, detailed 17 sets of measures to improve corporate governance and development ability of mainland-listed firms, pledging to support them to issue new shares to acquire overseas assets and attract more foreign strategic investors to mainland-listed firms.

Dong Dengxin, director of the Wuhan University of Science and Technology's Finance and Securities Institute, said the encouragement for cross-border investment will help sharpen the global competitiveness of Chinese listed firms and nurture the growth of more China-based multinationals.

Some experts said that the benchmark indexes may move in a narrow range during the rest of the month despite structural upside opportunities, given that the liquidity condition may not improve while external uncertainties remain.