(Yicai Global) July 30 -- Despite the volatility in China’s stock market this month, medium- and long-term investment opportunities are still obvious, according to Union Asset Management’s general manager.
Investors should continue to focus on tech, pharmaceutical and consumer stocks as they represent the direction of China’s economic transformation, Shi Baodong told Yicai Global in a recent interview.
“Valuations of listed companies are expected to fluctuate at high levels in the second half of this year due to the upward trend in their performance growth,” he said. “So, equity assets as a whole are more attractive than bonds.”
Shi suggested that investors should be more balanced in terms of industry or sector allocation in the second half than in the first half. They should focus on the tech, medicine and consumer sectors in the medium and long term, because they have more room for long-term growth and greater certainty about performance growth.
The technology and pharmaceutical sectors performed well in the first half. One of the representative boards, the Shanghai Stock Exchange’s Star 50 Index rose by about 45 percent in the six months.
Investors should also pay attention to financial and cyclical stocks with low market valuations in the short term, driven by faster-than-expected economic growth in the second quarter, Shi said.
Union Asset Management is a joint venture investment company under Union Life Insurance. With asset investment as its main business, the company provides long-term and stable value-added assets for shareholders and customers.
The China Banking and Insurance Regulatory Commission announced its decision earlier this month to raise the cap on the proportion of equities insurers can invest in to 45 percent of their total assets from 30 percent.
Though the move encourages more insurance funds to enter the stock market, which is positive for the market in the long run, it will have little influence in the short term, Shi said. The stock investment ratio of most insurance companies is not high, still some way off from the original investment ceiling of 30 percent. So a further increase will not affect much on their stock investment behavior.
Equity investment will become a very important target of insurance companies with high solvency in the medium and long term after the regulatory adjustments, providing a long-term stable source of funds for the capital market, he added.
The balance of insurance funds in China reached CNY19.6 trillion (USD2.8 trillion) as of the end of May, of which the size of investment in stocks and funds amounted to about CNY2.6 trillion, according to regulatory data.
Editors: Tang Shihua, Peter Thomas