China stocks: Can the third plenum be a game changer as investors seek fresh catalysts?

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Structural issues ranging from fiscal and tax reforms to fixes for the property market are likely to be on the agenda of the four-day conference, analysts say

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Xi Jinping, Li Keqiang, Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji and Han Zheng attend the sixth plenary session of the 19th Communist Party of China Central Committee in Beijing, capital of China. The session was held in Beijing from Nov. 8 to 11, 2021. Photo: Xinhua

Zhang Shidongin Shanghai

Published: 4:49pm, 5 Jul 2024Updated: 5:43pm, 5 Jul 2024

A high-stakes Communist Party gathering chaired by President Xi Jinping to be held later this month is widely expected to provide fresh impetus to China’s US$8.4 trillion stock market. But investors may be getting ahead of themselves in pricing a valuation re-rating, and some analysts say expectations need to be managed.

More than 370 members of the Party’s Central Committee are due to gather at the plenary session from July 15 to 18 in Beijing, to chart out reform and development policies that will shape China’s economy over the next five to 10 years.

Structural issues ranging from fiscal and tax reforms and opening-up policies to technology innovation and fixing the property market are likely to be on the agenda of the four-day conference, according to analysts at Goldman Sachs and Barclays.

The plenum comes at a time when a stock rebound spurred by government intervention has run out of steam, with investors looking for new drivers for gains after the positives of state-buying and a crackdown on market wrongdoings have been priced to perfection. The CSI 300 Index has given back about half of the 16 per cent gain posted since February lows.

“What the market wants to see are signs of material market-oriented reforms,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “The government will need to relax its grip on the economy to make it more market-based, and the supportive policies on the property market will need to be stepped up. What we don’t want to see is a policy status quo.”

A paramilitary police officer stands guard outside the Great Hall of the People before the second plenary session of the National People’s Congress (NPC) in Beijing, China March 8, 2022. Photo: Reuters

Investors have de-risked their portfolios, flocked to haven assets and in the process have driven yields on long-dated government bonds to record lows, after data suggested the world’s second-largest economy is struggling to grow. Industrial companies’ profit growth decelerated in June, foreign direct investment dropped and the manufacturing industry contracted for a second straight month. Although home sales in the first-tier cities of Shanghai and Shenzhen have rebounded after a broad package of rescue measures, the rest of the property market across the nation remains subdued due to high levels of inventory and shrinking demand.