Main reference: Story in Jinling Evening Post
THE APPARENT RETURN of the dreaded bird flu and strong statements of state support for the drug sector have sent some Chinese pharmaceutical counters higher.
Meanwhile, pronouncements from the recently concluded national political pow-wow in Beijing are seen as more supportive of certain industries than others.
Meifeng's shares have surged on strong government support for China's agricultural sector. Photo: Sichuan Meifeng
Whereas the first quarter saw A-shares languishing between a mini-bull and mini-bear status, the month of April seems to be ushering in a phase where incidents – rather than long-term trends and technical rebounds/corrections – may drive share prices up or down for particular sector themes.
Take the frightening return of avian flu, which seems to have been responsible for a few casualties in Eastern China of late.
Alongside the nervousness accompanying such distressing news is the continuous raft of statements by the new national government in support of boosting China's innovation in the pharmaceutical sector along with a desire to consolidate the highly fragmented industry to help pool resources and boost profitability.
This is very good news for established drug firms like Shandong Lukang Record Pharmaceutical Co Ltd (SHA: 600789), which is very research-oriented in its business.
Earlier this week, Lukang Record Pharma surged by its daily limit of 10% and is now trading at a year-to-date high.
Furthermore, the recently-concluded National People’s Congress, which ushered in a new national leadership, also devoted a great deal of podium time to speaking on the importance of keeping inflation under wraps.
The most sensitive item in the CPI basket of commodities is foodstuffs.
Part and parcel of the central government’s campaign to keep food prices under control is an effort to improve crop yields.
China shares are looking to repeat their winter flurry. Source: Yahoo Finance
Not only will this help control prices paid for groceries down the production chain, but will also help boost incomes back on the farm.
This fits neatly into another key theme of the new administration – helping bridge the growing wealth divide between city and countryside.
To this end, fertilizer counters are in demand.
One in particular – Sichuan Meifeng Chemical Industry Co Ltd (SZA: 000731) – is currently trading at 2012 highs given its strong market presence in China’s fertilizer sector.
Strong 2012 sales and a constant drumbeat of domestic demand support from Beijing helped push up home electronics giant Midea (SZA: 000527) 10% on Monday, with its Shenzhen-listed A-shares at highs for the year.
In fact, no fewer than 105 A-share listed enterprises are currently trading at YTD peaks.
However, market watchers generally agree that the beginning of the second quarter is hardly transparent in terms of offering directional guidance, and with a flood of annual reports about to be announced, it is anyone’s guess which way the benchmark Shanghai Composite with trend this month.
They also point to a less-than-generous availability of funds chasing A-shares for the current quarter which means that any “incident-driven” counters will most likely attract a sudden influx of limited investment capital.
The possible return of bird flu, sudden moves on the macro-economic front to contain runaway property prices, a ratcheting up of tensions on the Korean Peninsula -- all of these events hold potential upside and downside for listed enterprises in Shanghai and Shenzhen, and investors should keep an eye on both the business pages and the front pages amid the current volatility and lack of market visibility.
Consumer electronics manufacturers and retailers – especially white goods brands like Qingdao Haier and top POS plays like Gome Electronics could also do well this month on possible sales spikes and government efforts to ratchet up domestic demand.
And naturally, investors should always be vigilant for A-shares that offer big surprises – above or below market expectations – on the annual results side of things.
See also:
What Is China's Top Fund Manager Up To?
MEIFENG: Fertilizer-To-Fuel Shift After Euro IV
