[September 25, 2020, Beijing] “In Q3 2020, investor willingness to invest in stocks has increased significantly. Investors are optimistic towards China’s A-shares stocks and real estate market, and the number of people willing to invest in stocks has increased significantly. About 58.5% of the respondents in this quarter believe that A-shares will rise in the next year, up by 7.3 percentage points from the previous period. While the forecast for economic growth in China has been lowered, the overall sentiment for economic growth is high. Most investors believe that the impact of the US-China trade friction will be a positive factor on the Chinese economy in the long run.”
The Cheung Kong Investor Sentiment Survey (CKISS), a survey of investor sentiment and expectations of China’s capital market, is based on a large sample size from 13 major cities of China. The findings are gathered from questionnaires on investor sentiment collected in August 2020, newly released financial reports of listed companies, and the latest macro data of both Chinese and overseas capital markets. This report comprises of two sections. Section one highlights the details and findings of the questionnaires to better understand investors’ views on future trends in the stock market, real estate, and other assets, as well as macro indexes such as economic growth. In section two, factors that trigger investor sentiment are analyzed from the macroeconomic and listed companies’ perspectives.
More and more studies have shown that investors’ rational and emotional judgments on the market are the core component of capital market pricing. Professor Robert J. Shiller of Yale University, winner of the Nobel Prize in Economics, has made outstanding contributions in this field. Under his influence, many Chinese institutions have also launched similar investigations, but most of them have problems with transparency. Moreover, it is not enough to understand the emotion itself, as it is already reflected in the price. It is important to know where the emotion originates and whether it is reasonable.
Investor sentiment has improved significantly
About 58.5% of the respondents in this quarter believe that A shares will rise in the next year, up by 7.3 percentage points from the previous period. About 74% of respondents believe that house prices will increase in the future by 21 percentage points compared with the previous period.
Investors’ willingness to invest in stocks has increased significantly, and their willingness to invest in conservative assets such as banks’ wealth investment products has declined. Specifically, 26.5% more people invested in stocks, an increase of 10% from the previous period; 13.8% more people invested in equity fund, an increase of 9% from the previous period; and 59.4% more people were willing to invest in banks’ wealth investment products and prudent funds, down by 7.5 percentage points from the previous period.
Global capital markets are picking up
With the rebound in investor sentiment, A-shares continued to rebound in the third quarter. The total return rates of the CSI 300 Index, SME Board, and ChiNext in the first 8 months of 2020 were 18%, 38%, and 52%, respectively. It is a period of time with the highest return on investment in the A-share market for years.
The recovery of the capital market is largely driven by the coronavirus epidemic. China’s handling of the coronavirus has enabled its economy to recover in a V-shape. Capital markets in countries and regions where the virus has been contained have also performed similarly. In the first eight months of 2020, the US S&P 500 rose 8.3% and the South Korean’s Composite Index rose 5.3%. The epidemic in the United States has not been completely controlled, but it has not gone out of control. More importantly, its capital market has been supported by unprecedentedly strong fiscal and monetary policies.
China’s economy recovers in a V-shape, while the economic recovery of developed countries is very slow
Globally, the novel coronavirus epidemic is getting worse. As of September 13, there were a total of 28.81 million confirmed cases worldwide. Latin America, North America, and South Asia are the most severely affected, with a total of 8.19 million, 6.62 million and 5.9 million confirmed cases respectively. Southeast Asia and East Asia are relatively the least affected, with 550,000 and 190,000 confirmed cases respectively. In the context of the pandemic spread, major economies have shrunk sharply. In the second quarter, US GDP fell 32%, Japan fell 10%, and the Eurozone fell 15%. Although the third quarter data has not yet been released, there are signs that the economic recovery of western developed countries is very slow.
The epidemic has intensified the structural conflicts between China and the United States.
Since the epidemic spread in the United States, the Trump administration has tightened sanctions on Chinese companies in order to divert people’s attention on domestic conflicts. The actions taken cannot help but make people worry about the huge risks of China-US economic decoupling. Our research has found that China and the United States have extensive and deep links in economics, trade, and humanities. Once decoupled, not only will the Chinese and American economies be affected, but also the world economy. Without Chinese products and services, Americans will have to face high commodity prices, which will generally reduce the American people’s living standards. At the same time, if the Chinese market is lost, American companies will also lose many investment opportunities, which will cause a substantial blow to American companies. Therefore, we believe that the complete decoupling of China and the United States is not in the national interest of anyone.
Increase investments in gold and A-share markets, and focusing on companies with import substitution capabilities in the high-tech field
Based on the survey results, we make three predictions for investment. Investors should probably increase their asset allocation in safe-haven products such as gold as global uncertainty is still on the rise. Second, we recommend that more investment should be made in companies with long-term value but whose assets are undervalued as China’s economy is obviously recovering. Third, we recommend that investors pay attention to companies that have import substitution capabilities in the high-tech field as the risk of China and the United States decoupling in the high-tech field is increasing. When the economies of China and the United States were deeply interconnected, these companies have no competitiveness and profitability as their technologies were not advanced enough. However, the possibility decoupling between China and the United States will force China to accelerate the high-tech sector. This can be an unprecedented market opportunity for China’s high-tech companies.
For more information, please check: Cheung Kong Graduate School of Business Releases Q3 2020 ‘Cheung Kong Investor Sentiment Survey’ Report.pdf