Chips, coal and real estate top Chinese traders’ plenum watch list
After a year of regulatory crackdown that wiped out trillions of dollars in Chinese stocks, investors are on high alert for the risk of yet another policy shift as the Communist Party launches a major convention this week.
As President Xi Jinping seeks to lay the groundwork for next year’s Party Congress which is expected to extend his term, the plenum is seen as a chance for him to bolster his current common momentum for prosperity or even usher in new ones. policies that affect actions.
There is no shortage of sectors that could experience strong price fluctuations as a result of the event. The tech and gaming giants are still healing their wounds following regulatory restrictions on monopoly practices and property control. Energy suppliers are rushing to prepare for winter in times of scarcity. Real estate developers remain in a debt crisis.
The plenum “is expected to set the tone for long-term ‘common prosperity’ policies and dominate the stock outlook for the country’s five-year plan through 2025,” Bloomberg Intelligence analysts, including Francis Chan, wrote in a note. . “Chinese investors may have to adapt to the new reality of shifting political winds.”
More details may also come on the coexistence of private and public ownership, and dual circulation – a strategy to focus more on the domestic market to spur growth, they said in a November 1 memo.
If history is any guide, the meeting could provide at least temporary relief, given that each of the previous 10 conventions has been followed by stock rallies next week, according to data compiled by Bloomberg.
Here are a few sectors investors are watching during the four-day event that begins on Monday:
Any mention of the real estate sector might be the first item investors look for in the official closed-door meeting press release, which is usually released upon its conclusion.
The China Evergrande group’s liquidity crisis and the collapse of developers’ dollar bonds triggered a record rate of defaults and downgrades for Chinese issuers. Traders will be watching for any signs of a change in parties’ opinion that Evergrande’s risks are controllable and whether it will maintain the position that developers must honor their debt obligations.
As Xi’s mantra “homes are made to live, not to speculate” has reached new rhetorical heights and land sales by local governments are a problem, China last month revealed a plan to expand property tax lawsuits. Any detail on the pace and scope of the reform, launched in Shanghai and Chongqing in 2011, would attract the attention of traders seeking political clarity.
China has unveiled its ambitions for technological self-sufficiency in its latest five-year political plan, as it attempts to reduce its dependence on the West for crucial supplies like semiconductors.
More specific measures to support the research and application of cutting-edge technologies will give the country’s internet giants a much-needed chance to attract investors, after their stocks have been battered by government regulation.
Companies rushed to jump on the bandwagon, Tencent Holdings Ltd. presenting its first chips this week and Alibaba Group Holding Ltd. last month revealing one of China’s most advanced semiconductors for use in data centers.
Coal and electricity
The shares of the coal miners collapsed as the government took extraordinary steps to contain soaring prices due to power shortages. The measures include orders for producers to increase production, restrictions on futures trading and a plan to create a benchmark for floating coal prices.
“Pragmatic policy intervention rather than monetary and fiscal measures appears to be the order of the day, reflecting an internal shift in economic policy,” Jefferies strategists, including Sean Darby, wrote in a November 1 memo. They favored power producers and continued to favor beneficiaries of lower thermal coal prices such as materials.
The renewable energy sector has been a rare refuge in the midst of the regulatory storm. Government support is clear as China aims to make its economy carbon neutral by mid-century.
An official roadmap to cap carbon emissions by 2030 was released last month, listing targets on energy storage, clean energy production and transportation, among others. While optimism is widespread about the long-term prospects for wind and solar power and electric cars, a blessing from the plenum would give their actions an immediate boost.
“Fully promote consumption” was included in last year’s plenum communiqué as a way to facilitate “dual circulation” as China seeks to hedge against global trade risks. Boosting consumption and making it a bigger engine of growth will likely remain key, although mixed signals could be sent as part of the campaign to close the wealth gap.
Food and liquor companies went bankrupt when Xi hinted at an expansion of the consumption tax in an October article on Common Prosperity. Any change in such a policy would trigger a rapid reaction from stock market operators.
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