The “explosive” Chinese equity market rally that started in the fourth quarter of 2014 may have only just begun, says equity fund manager K2 Asset Management.
In its international outlook for 2015, K2 Asset management said tailwinds created by China’s economic reform will contribute to a rally in domestic equities.
“The current Chinese leadership have been targeting a wide-ranging reform agenda designed to help China shift to a more sustainable economy funded by private capital and driven by consumer spending,” a statement from K2 Asset Management said.
“While the reform agenda will help boost productivity and unlock latent growth potential, the [People’s Bank of China] PBOC has now also joined in by cutting interest rates and reducing the reserve rate requirement for Chinese banks.
“These growth tailwinds, when combined with market valuations still well below slower growing peers, suggest the explosive equity market rally that began in Q4 2014 may have only just begun,” it said.
K2 Asset Management pointed out the significant reforms that China has implemented, to date, include banking reform, state-owned enterprises (SOE) reform and the formation of free-trade zones.
The equity fund manager also said China is continuing with the reform of capital markets with the opening of the HK China Interconnect, deepening of the corporate bond market and less foreign exchange intervention.
“Elsewhere, crackdowns on corporate corruption and SOE excess has kept the governing party popular through this transition period,” K2 Asset Management said.
K2 Asset management said since increasing its investments in October 2014 the funds remain significantly invested in both China H and China A shares.
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