(Yicai Global) Feb. 20 -- China's stock markets continue to rebound despite an initial setback caused by Covid-19 virus fears, proving that institutional investors are more focused on long-term prospects, Qi Hao, asset manager at Eastspring Investments' Shanghai branch, told Yicai Global.

Main market indexes plunged on Feb. 3, the first day of trading after the extended Chinese New Year holiday. Since then they have rebounded to pre-coronavirus levels, gaining between 11 percent and 22 percent. The Shenzhen Stock Exchange's Nasdaq-style ChiNext board has even hit highs not seen since December 2016.

"Foreign investors are more focused on long-term investment and are much more tolerant of short-term fluctuations than domestic institutional investors," Qi said, adding that they care more about business models and the quality and sustainability of earnings than short-term profit.

The Chinese economy has suffered a short-term shock, but this will only postpone, not cancel, most consumer demand, such as the purchase of household appliances, home furnishings and cars. As the epidemic recedes, this kind of demand will recover first. A rebound in catering and tourism is likely, he added.

Manageable Risks

Electronic equipment manufacturers face wider risk exposure mainly because they tend to employ tens of thousands, even hundreds of thousands, of workers, and there is a real chance of an outbreak of the disease on-site, Qi said. These businesses have to consider delaying production to protect their workers' health, he added. Such delays should be manageable.

Most auto parts makers are located in Jiangsu and Zhejiang provinces and in Shanghai far from virus-hit Hubei province. Although factories did not resume production until two weeks after the Lunar New Year break, the situation is salvageable. In general, car parts companies have sufficient stock to last one to two months. Some companies produce overseas. So the overall impact on the industry is also manageable, Qi said.

Tesla's increasing production rate in China will be a driving force for electrification and artificial intelligence trends, he added. This will bring additional chances of growth for Chinese parts makers.

"The first quarter is usually the off-season of US tech giant Apple's industrial chain," he added. "Even if production was delayed, given the mature output capacity, manufacturers can quickly catch up. So long as work resumes in the future, the supply chain should not be greatly affected."

5G, Healthcare

Investors should pay attention to the growth of online retail models and businesses that apply fifth-generation wireless technology, Qi said. Companies with strong links to the 5G sector present good investment opportunities, be it base station equipment, core components, communication networks or end-user devices.

Major health events boost long-term investment in the country's medical and healthcare systems and improve national health awareness, he added. Both the outbreaks of Severe Acute Respiratory Syndrome in 2003 and bird flu in 2008 drove investment in healthcare.

China's health-related expenditure still accounts for a low proportion of gross domestic product compared with developed countries, Qi noted. Investment in primary hospitals may increase in the future and the growth of online prescriptions may speed up.

Eastspring Investments has always been optimistic about the medical services sector in China that is not part of the price-capped medical insurance system. Ophthalmology, dentistry and other services affected by the epidemic will benefit from an uptick in consumption in the medium and long term, he added.

Editors: Tang Shihua, Kim Taylor