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Chips, coal and property top China traders’ plenum watch list


After a year-long regulatory crackdown that wiped out trillions of dollars from Chinese equities, investors are on high alert for the risk of more policy change as the Communist Party kicks off a major convention this week.

With President Xi Jinping looking to lay the groundwork for the Party Congress next year that should extend his term, the plenum is seen as a chance for him to reinforce his current common prosperity push or even usher in new policies that reverberate through equities.

There is no shortage of sectors that could see sharp price moves from the event. Technology and gambling giants are still licking their wounds following regulatory curbs on monopolistic practices and ownership control. Energy suppliers are racing to prepare for winter amid shortages. Property developers remain deep in a debt crisis.

The plenum “should set the tone for long-term ‘Common Prosperity’ policies and dominate stocks’ prospects for the country’s five-year plan to 2025,” Bloomberg Intelligence analysts including Francis Chan wrote in a note. “China investors may have to adapt to the new reality of shifting policy winds.”

More details may also come on the coexistence of private and state ownership, and dual circulation — a strategy to focus more on the domestic market to drive growth, they said in a Nov. 1 note.

If history is any guide, the meeting could provide at least some temporary relief, given that each of the previous 10 conventions was followed by stock rallies in the next week, Bloomberg-compiled data shows.

Here are some sectors investors are keeping an eye out for during the four-day event that starts Monday:

Property

Any mention of the real estate sector could be the first item investors search for in the official statement from the closed-door meeting, which is usually published at its conclusion.

China Evergrande Group’s liquidity crisis and a slump across developers’ dollar bonds have sparked a record pace of defaults and rating cuts for Chinese issuers. Traders will monitor any signs of a shift in the party view that Evergrande’s risks are controllable, and whether it will maintain the stance that developers must meet their debt obligations.

With Xi’s mantra “houses are for living, not speculating” raised to new rhetorical heights, and land sales by local governments hitting a snag, China revealed last month a plan to expand property tax trials. Any details on the pace and scope of the reform, launched in Shanghai and Chongqing in 2011, would draw intense attention from traders seeking policy clarity.

Semiconductors

China has unveiled ambitions for tech self-sufficiency in its latest five-year policy blueprint, as it tries to reduce dependence on the West for crucial supplies like semiconductors.

More specific measures to support the research and application of cutting-edge technologies will give the nation’s internet giants a much-needed chance to lure investors, after their shares were beaten down by government regulation.

The firms have raced each other to jump on the bandwagon, with Tencent Holdings Ltd. introducing this week its first chips and Alibaba Group Holding Ltd. revealing last month one of China’s most advanced semiconductors, for use in data centers.

Coal and power

Shares of coal miners have been slumping as the government took extraordinary steps to tame surging prices amid power shortages. The measures include orders on producers to increase output, restrictions on futures trading and a plan to create a benchmark for coal prices to float around.

“Pragmatic policy intervention rather than monetary and fiscal measures seems to be the order of the day reflecting an internal shift on economic policy,” Jefferies strategists including Sean Darby wrote in a Nov. 1 note. They were upbeat on power producers and continued to favor beneficiaries of lower thermal coal prices such as materials.

Renewables

The renewable energy sector has been a rare safe haven amid the regulatory storm. Government backing is clear as China aims to make its economy carbon neutral by mid-century.

An official road map for capping carbon emissions before 2030 was released last month, listing targets on energy storage, clean power generation and transportation among others. While optimism is widespread about the long-term prospects of wind and solar power and electric cars, a blessing by the plenum would give their shares an immediate boost.

Consumption

“Fully promoting consumption” was included in last year’s plenum communique as a way to facilitate “dual circulation” as China seeks to hedge against global trade risks. Stimulating consumption and making it a greater growth driver will likely remain pivotal, even though mixed signals could be sent amid the campaign to reduce the wealth gap.

Food and liquor firms tanked when Xi hinted at an expansion of consumption tax in an October article on common prosperity. Any developments in such a policy would trigger swift reaction by stock traders.

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