A Stock Trader’s Guide to China’s National People’s Congress

Selina Xu
·5 min read
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(Bloomberg) -- Equity traders in China are keenly looking to this weekend’s National People’s Congress to provide fresh catalysts after a torrid February abruptly halted the market’s reopening rally.

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More steps to boost consumption, new business-friendly policies for the private sector, and further support for the property industry are among measures that may do the trick. The Congress — China’s parliament — will meet Sunday and usher in a once-in-a-decade leadership overhaul of key agencies. Expectations are rising that Beijing will unveil an economic growth target above 5% this year.

“Stimulating consumption to return to pre-pandemic levels of growth is definitely Beijing’s top priority,” Shen Meng, director at Beijing-based boutique investment bank Chanson & Co., said in an interview. “The other priority will be boosting investments, especially through new infrastructure spending.”

Concerns about China’s uneven economic recovery and a rise in geopolitical tensions saw stocks tumble in February after a three-month surge. A gauge of Chinese stocks listed in Hong Kong slid more than 11% last month, while the CSI 300 Index of onshore equities also dropped. Yet the markets roared back on Wednesday as unexpectedly strong manufacturing data suggested that the recovery is gathering pace.

Markets will be watching China’s premier-in-waiting Li Qiang, who is number two on the Politburo Standing Committee, and reacting to how pro-growth he is, Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs Group Inc., said at a briefing in Hong Kong last week.

READ: China’s Growth Target, Stimulus in Focus for New Leadership

Here are the key focus areas for equity traders:

Consumer Demand

Bolstering domestic demand topped a list of priorities at an annual meeting of senior leaders in December to determine the agenda for the economy and financial sector. Consumer credit support should be increased in areas including new energy vehicles and elderly-care services, President Xi Jinping said at the gathering.

December’s decision means the consumer sector will likely be a key beneficiary of the NPC, Eva Yi, chief economist at Huatai Securities in Hong Kong, wrote in a research note this week.

Potential winners from steps to support consumer demand include liquor stocks such as Kweichow Moutai Co. and Wuliangye Yibin Co., which have paced gains in the CSI consumer staples index this year. Other consumer discretionary stocks like hotpot-chain Haidilao International Holding Ltd. may also extend recent gains.

New subsidies for electric-vehicle purchases would boost EV makers such as BYD Co., Li Auto Inc. and Geely Automobile Holdings Ltd. Companies prominent in the elderly-care industry include Shanghai Everjoy Health Group Co. and Yihua Healthcare Co.

Property Revival

Officials have pledged support for the ailing property sector but said they want to avoid financial speculation on housing. Measures already enacted include moving away from rules restricting land sales by local governments and starting a pilot program for real-estate private equity investment funds.

The government will likely continue its property easing measures, Nomura analysts Jizhou Dong and Stella Guo wrote in a note Tuesday.

That would likely benefit larger and financially healthier private firms such as Longfor Group Holdings Ltd. and Seazen Group Ltd., as well as state-owned names like China Overseas Land & Investment Ltd. and China Resources Land Ltd., they wrote.

Digital Economy

The government is ramping up its bid to expand new infrastructure focused on 5G networks, data centers, and cloud and artificial intelligence. The central committee of the Communist Party and the State Council on Monday released new guidelines to promote digital-economy integration.

Further measures like this from the NPC would bolster telecom firms like China Telecom Corp., the country’s largest internet data center provider, which is up 52% this year. Other data firms also stand to benefit, including Shanghai Athub Co., Yimikang Tech Group Co. and Insigma Technology Co.

Infrastructure

China’s government is likely to scale back fiscal stimulus this year to ease the strain on government finances, but Beijing is unlikely to ignore infrastructure spending because much of the economy is geared toward construction.

“Weakness in the property and export sectors could maintain the need for infrastructure spending this year,” said Denise Wong, an analyst at Bloomberg Intelligence in Hong Kong.

Infrastructure stocks that may benefit from any additional investment include China Communications Construction Co., Shanghai Construction Group Co., and Sany Heavy Industry Co.

Energy

Investors will also be on the lookout for any fiscal spending on China’s green transition as the nation seeks to meet its 2060 decarbonization target. This may include measures to boost sectors such as renewables, nuclear revival, energy storage and hydrogen commercialization.

That may bode well for green stocks such as Tongwei Co., LONGi Green Technology Co., Sungrow Power Supply Co., and electricity and grid names such as Huaneng Power International Inc., and China Power International Development Ltd.

Baby, Maternity Stocks

With China’s population shrinking in 2022 for the first time in six decades, many local governments have begun implementing policies to boost birth rates. That momentum is likely to carry over to the NPC, with measures to raise the fertility rate and delay the mandatory retirement age, BNP Paribas economists wrote in a note on Feb. 24.

Such policies may be a boon for baby and maternity stocks, including Kidswant Children Products Co. Ltd., Shanghai Aiyingshi Co. Ltd., Jinxin Fertility Group Ltd., formula maker China Feihe Ltd. and baby apparel maker Annil Co. Ltd.

Big Tech

Last but not not least, Xi has signaled that Beijing wants major tech companies to play a leading role in the recovery this year, creating jobs and competing in the international market.

Signs of a more conciliatory tone after a yearlong crackdown may boost Big Tech companies such Tencent Holdings Ltd., Alibaba Group Holding Ltd. and Baidu Inc.

--With assistance from Jason Rogers, Winnie Zhu and Mengchen Lu.

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