Analysts: A-share market may rally after 10-day break

China's A-share market may stage a rally following the 10-day-long holiday closure as increasing data points to an uptick in economic momentum amid rebounding consumer spending, analysts said on Friday.

Nevertheless, they said continuous policy support to bolster consumer confidence and more reform measures to protect the legitimate rights of individual investors are still required to ensure any potential market recovery withstands lingering external uncertainties.

The A-share market is scheduled to resume trading on Monday after the combined Mid-Autumn Festival and National Day holiday starting on Sept 29 witnessed a revival in consumer spending, especially as travel activity has recovered to levels seen prior to the COVID-19 pandemic.

During the eight-day holiday, the country registered domestic tourism revenue of 753.4 billion yuan ($103 billion), up 129.5 percent from a year earlier and 1.5 percent from the same period in 2019, according to the Ministry of Culture and Tourism.

"Consumption data for the combined holiday is likely to beat expectations, potentially providing a fillip to A-share blue-chip consumer stocks and triggering a market rebound," said Yang Delong, chief economist of First Seafront Fund.

Also boosting market confidence is the recovery in manufacturing activity. The official purchasing managers index for the manufacturing sector came in at 50.2 in September, up from 49.7 in August, indicating that the sector has resumed expansion for the first time in half a year, according to the National Bureau of Statistics.

Chris Liu, a senior portfolio manager at Invesco, a global investment management company, said China's economic indicators will likely continue to recover in the coming months as policy support filters through, helping investor sentiment in the A-share market bottom out in the fourth quarter.

Liu said stocks in the consumption, technology and healthcare sectors may in particular stage a rebound.

On Friday, Chinese consumption-related shares rose in Hong Kong as carrier Air China Ltd was up by 2.71 percent to close at HK $5.3, while e-commerce platform Meituan rose 2.27 percent to HK $108.3.

However, Louise Loo, lead economist at British think tank Oxford Economics, cautioned that retail activity could falter following a temporary holiday-related surge, meaning that macroeconomic policies will likely remain accommodative to promote a sustained recovery.

External headwinds could also complicate any potential A-share rally as the Dow Jones Industrial Average declined by 1.62 percent from Sept 29 to Thursday, closing at 33,119.57 points amid lingering uncertainty over whether the US Federal Reserve will further raise interest rates in November.

To further boost investor confidence, Wu Xiaoqiu, dean of the China Capital Market Research Institute at Renmin University of China, said reforms should be deepened to make the A-share market more oriented to facilitating investors earning returns.

For instance, Wu said the prerequisite for large shareholders selling stakes in listed companies should be to provide investors with dividends in proportion to the size of the company's A-share listing proceeds.