China's A-share market is expected to see sustained bullish performance in 2021 as more efforts are made to improve the quality of listed companies and further explore domestic demand, experts said.
According to the Central Economic Work Conference, held from Dec 16 to 18, China's capital market is set to seek healthy development by enhancing the quality of listed companies.
For a third consecutive year, the central leadership has stressed the quality of public companies during the conference.
Pang Ming, head of macro and strategic research at China Renaissance Securities, said that such emphasis shows the authorities' goal of deepening reform and improving public companies' quality in order to build a more regulated, transparent, open, vibrant and resilient capital market.
Li Xunlei, chief economist at Zhongtai Securities, said that the registration-based initial public offering mechanism, which is now applied at the STAR Market of the Shanghai Stock Exchange and the ChiNext board of the Shenzhen Stock Exchange, should be more widely adopted so that more companies can compete in the capital market.
Meanwhile, stricter delisting rules should be implemented to retain only competitive companies in the A-share market. Only in this way can the quality of China's listed companies truly be improved and can the stock market allocate resources more efficiently, he said.
The State Council, China's Cabinet, released a guideline in October to improve the quality of listed companies, focusing on improving companies' corporate governance and competitiveness.
Zhang Yulong, chief strategist at China Securities, said that the expansion of domestic demand was also highlighted at the central economic meeting, which means that investors can look for opportunities in consumption-related companies in the A-share market in the following months.
A-share liquor companies reported 2.23 percent growth on Dec 22, the highest average daily increase, while the benchmark Shanghai Composite Index declined 1.86 percent.
Yang Delong, chief economist at Shenzhen-based First Seafront Fund, said that consumption companies represented by producers of baijiu — a Chinese liquor — have shown strong performance over the past few years and that momentum is expected to continue as domestic consumption plays an increasingly important role in China's economic development.
Given the slump seen in the first quarter of this year due to the COVID-19 pandemic, a large number of public companies are likely to report significantly higher year-on-year growth in the first quarter of 2021, which will boost A-share performance in the spring, said Yang.
A slow but long bull market can be expected in 2021 with the Shanghai Composite Index likely to grow by 20 percent next year, said Yang. Consumption and new energy should be the focuses for investors next year, while some leading technology companies will see a rebound in the following months, he added.
Guo Lei, chief economist at GF Securities, said that technology innovation is very likely to be a major theme in next year's A-share market as two of the eight major missions emphasized during the Central Economic Work Conference were about technology innovation. Forming a major impetus for the A-share market in the long run, technology's empowerment of traditional industries will be more prominent, he said.
Wang Qian, the Asia-Pacific chief economist at Vanguard Investment Strategy Group, said that China's equity market, which is already the second-largest in the world, will outpace the country's economic growth with direct financing playing a greater role in the economy.
She said that as China's economic cycle is mainly driven by domestic demand, global investors should diversify their portfolio by including the Chinese market.
