China may not have announced bazooka-like incentives at its annual parliamentary meeting last week, but it made clear which sectors it would support. Beijing announced a GDP growth target of about 5% and an official fiscal deficit of 3%, which is consistent with last year's goals. The authorities announced plans for “long-term” bonds for special projects, while hinting that they could still deploy other stimulus tools. “While the level of fiscal stimulus may be modest and underlying real estate risks remain, we believe that the strategic focus on nurturing new productive forces, developing the digital economy, encouraging domestic consumption, and continuing to open up should be positive for earnings growth and create structural opportunities in the market.” Class A shares,” Stephen Sun, equity strategist at HSBC China, and the team said in a report on Wednesday. Last week, China's top economic planning agency talked about how the push to modernize equipment will create annual spending of more than 5 trillion yuan — about $700 billion a year in corporate capital expenditures. The Ministry of Finance said that this year it will spend tens of billions of yuan on industrialization and developing vocational education. China's annual report on the government's work “once again emphasized the high-quality development of the digital economy and specifically mentioned 'AI+' initiatives to promote the digitization of traditional industries,” HSBC analysts said. “Therefore, we believe that industries related to the digital economy will benefit, including those related to AI servers and networking devices, as well as software applications (AI+) such as cybersecurity,” they said. The broader market has not yet been affected. After a volatile start to the year, the Shanghai Composite Index rose about two-thirds percent last week, with stocks linked to gold and energy generation among the biggest gainers, according to Wind Information. Wu Qing, the new securities regulator, made his first major press appearance in the position on Wednesday, sending mostly “positive messages” that included greater investor protection, attracting long-term capital and encouraging dividends, according to Laura, a strategist. Stocks in Morgan Stanley. Wang. However, it noted in a separate note that sentiment around mainland Chinese stocks, known as A-shares, “has fallen significantly after peaking last week” due to a lack of stated political support. “MS's economics team believes that the announced fiscal package is insufficient to boost the economy as the fiscal package remains supply-focused,” Wang said. 'New productive forces' Amid the success of Chinese-made electric cars – and US technological limitations – Beijing has been pushing for domestic technology and industrial capacity. Thanks to high-level signals by Chinese President Xi Jinping, one popular political term that has emerged is “new productive forces” or engines. In an example of how the phrase has spread, officials in the giant city of Chongqing, with a population of about 32 million, made an effort last week to show how they were prioritizing digital transformation and advanced manufacturing. They described the new “powers” as indicating greater technological innovation, greater efficiency and better environmental friendliness. HSBC analysts said: “Policy support for the development of advanced production capacity will lead to increased capital expenditures in associated value chains such as the industrial and information technology sectors.” Here are some of their picks for stocks with a Buy rating, the first two for exposure to “new productive forces” and the next two for plays on AI-generated content. All four stocks are listed in Shenzhen: Inovance – As a seller of factory automation components, Inovance should benefit from a recovery in the discrete automation market in 2024, HSBC analysts said. They have a price target of 83 yuan per share, roughly 24% up from Friday's close. Naura Tech – The chipmaker stock currently has just a 3% upside from HSBC's price target of 309.7 yuan based on Friday's close. But analysts expect that “NAURA Tech will benefit from increased capital expenditures of… [third-party integrated circuit-packaging and test services] Due to its comprehensive product offerings in advanced packaging. Product in the fourth quarter. The stock closed about 5% above HSBC's target price on Friday. Sanqi Entertainment – HSBC analysts expect this gaming stock to nearly double to 36 yuan per share. “We like Sanqi because of its strong strength in the mini market.” The report said: “Although any industrial growth may be invigorated in the near term due to top-down policy, many analysts warn that the problems facing the Chinese economy overall remain unresolved. With Beijing remaining reluctant to provide support Much stronger.” “We struggle to see how the ongoing deflationary spiral can be effectively reversed,” the Clocktower Group said in a March 5 report. “What concerns us most is that escalating overcapacity problems in the industrial sector may begin to force manufacturing companies to slow down production and capital expenditures, which could cause a sharp decline in demand for domestic credit,” the report said. “In other words, if demand for… “More private sector credit, Beijing’s obsession with fiscal prudence and reducing local government debt would be suicidal.” — CNBC’s Michael Bloom contributed to this report.
