China state-owned firms set for reform boost

China is expected to announce more details on reforms for state-owned enterprises (SOEs) before the Lunar New Year in February, according to China Securities Journal.

China retail
Source: Bloomberg

The reforms are likely to be seen as long-term good news for SOE stocks as the companies become more efficient and profitable.

Some of the listed-SOEs include China Aviation Oil, China Merchants Holdings, Ying Li International Real Estate, China Mobile, China Everbright Water, Citic Securities and Cosco Corporation. 

One of the widely expected measures includes opening up ownership of SOEs to local investors and public funds. The injection of more capital and prospects of improved fundamentals will offer some strong support for stock prices.

The reforms will be a welcome boost for SOEs, which posted slower profit growth in the first 11 months of the year. Profit growth slowed from 8.2% to 4.5% year-on-year, at 2.24 trillion yuan during the January-November period, according to the Ministry of Finance statement earlier this month.

Recent indicators of China’s overall economy have also not been particularly encouraging, raising speculation of further stimulus measures being rolled out.

Over the weekend, China’s industrial profits data reflected a 4.2% dip, which was worse than the previous month’s 2.1% drop. Looking ahead this week, we could see further indicators of weakness with HSBC China manufacturing Purchasing Managers' Index (PMI) figures, due to be released on Wednesday (9.45am Singapore Time). The Bloomberg consensus forecast is for PMI to be flat at 49.5 – a seven-month low and under the 50-point level, which separates as contraction and expansion.

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