China reform winners consumer, healthcare stocks; losers, big banks

Sun Nov 17, 2013 9:09am EST
 
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By Clement Tan

HONG KONG (Reuters) - China's mass consumer, healthcare and non-banking financial counters may well be the early winners in the country's stock markets this week after Beijing promised the most sweeping economic and social reforms in nearly three decades.

Equity market investors are likely to cheer a plan to increase private ownership in state-owned enterprises, but the longer-term prognosis will likely vary across sectors.

The big losers could well be the "big four" state banks, ICBC (1398.HK: Quote) (601398.SS: Quote), China Construction Bank (0939.HK: Quote) (601939.SS: Quote), Agricultural Bank of China (1288.HK: Quote) (601288.SS: Quote) and Bank Of China (3988.HK: Quote) 601988.SS, which dominate formal lending. They are already feeling the pinch of interest rate liberalization and China's leaders have promised to accelerate financial sector reform.

"In the near term, we believe market sentiment should be lifted by the detailed announcement of the Third Plenum released Friday night," Goldman Sachs China equity strategists said in a client note referring to a four-day conclave of Communist Party leaders that set the reform agenda, promising "decisive" results by 2020.

The 60-point plan included land and residency reform to make it easier for rural Chinese to migrate to urban areas, a relaxation of the country's one-child policy and allowing markets to play a greater role in the economy.

Stock markets in Hong Kong and China had rallied on Friday after an apparent leak of part of the plan circulated on social media. The China Enterprises Index .HSCE of the top offshore Chinese listings in Hong Kong jumped 3 percent for its biggest percentage gain in three months. <ID: nL4N0J014E>

This could continue since investors are underinvested in Chinese equities, analysts said. A Bank of America-Merrill Lynch survey showed that just 11 percent of emerging market funds had an "overweight" position on Chinese equities in November ahead of the Communist Party meeting, down 45 percentage points from October. Since the reforms announced on Friday have helped dispel doubts about the reform credentials of President Xi Jinping, some of the funds could upgrade their view of the markets and filter money back in.

Investment into China-focused equity funds has been choppy in the last month, but data from global funds tracker EPFR showed there were net inflows in the week to November 13, despite market losses after the initial communiqué on the reforms released late on Tuesday had disappointed.   Continued...

 
A trader walks at the Hong Kong Stock Exchange during morning trading December 15, 2011. REUTERS/Tyrone Siu