China's A-share market may have bottomed already, such that a marked recovery in the fourth quarter of the year might ensue, given the improving economic momentum and investor sentiment, said analysts of investment banks and asset management firms.
Wendy Liu, JPMorgan's Asia and China equity strategist, said that the CSI 300 index may register a marked rally in the fourth quarter as the A-share market has hit the bottom in the medium term.
In the fourth quarter, the CSI 300 index may rise to a range of around 4200 points to 4600 points, driven by consumer stocks and new-economy companies that have seen stable earnings growth, Liu said.
The most notable earnings recovery, according to Liu, is seen in leading players in the discretionary consumption sector and the internet industry based on second quarter financial results. Tourism, sporting goods, education, and new energy vehicles are all forecasting a positive trend in business prospects in areas like tourism, sporting goods, education, and new energy vehicles.
On Monday, the CSI 300 Index dropped 0.65 percent to close at 3714.6, dragged by financials and real state companies after the index hit 3664.77 on Friday, the lowest level since early November. A target range of four200 points to 4600 points would indicate a rise of about 13 percent to 24 percent from Monday's close.
James Wang, head of China strategy at UBS Investment Bank Research, said China's equity market may have bottomed out following recent corrections, as hinted by some technical indicators and leading economic indicators.
The A-share market historically generated an average return of 8 percent in the three months following the market's foreign monthly capital outflows as much as what was recorded recently, Wang said.
By northbound trading, the connecting programs between the mainland and Hong Kong exchanges, a total of 89.68 billion yuan flowed out of the A-share market in August. The pace of outflow has slowed this month as the amount of outflow came in at 27.97 billion yuan from the beginning of the month to Monday, according to market tracker Wind Info.
Wang said: 'I think we are going to start a conversation about the issue,' he said.
The official manufacturing PMI fell to 49.7 in August. Although the index remained in contraction territory, the index has increased in three consecutive months amid improving business prospects and may return above the boom-bust line of 50 this month, experts said.
David Huang, a senior investment strategist at AllianceBernstein, a global asset management firm, said recent market corrections have actually created a good timing for bottom fishing given China listed companies' robust long-term growth potential.
The future economic growth of China is likely to surpass most developed countries, which means that the profit growth prospects of many listed companies are still promising, Mr. Huang said.
The most successful sectors following market troughs were e-commerce, and various consumer subsectors such as restaurants, leisure and beer, Wang said.
He added that the least preferred sectors remain airlines, banks, materials and autos.