Equity Winners and Losers From China's Big Political Meeting

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(Bloomberg) -- As China’s annual legislative gathering goes into a fourth day, it’s becoming clearer which industries stand to benefit, and those that won’t.

Increased military spending, updates on plans to build new urban zones, support for the health-care industry and easier lending rules for banks have been among the best investment themes for the week, even as the rising risk of a trade war disrupted the stage-managed atmosphere.

Defense Spending

Defense expenditure will increase at the quickest pace in three years as President Xi Jinping pursues a “world-class” military capable of projecting force further from the country’s coasts. The central government’s military outlays are expected to rise 8.1 percent to 1.11 trillion yuan ($175 billion) this year, the Chinese Ministry of Finance said Monday. That’s lifted the likes of AVIC Helicopter Co. and AECC Aero-Engine Control Co.

New Zones

China’s top economic planner said initial planning for Xiongan -- a new city to be built south of Beijing -- is basically complete and major infrastructure construction projects are underway. That’s boosted related stocks such as China Fortune Land Development Co. and Tangshan Jidong Equipment and Engineering Co., a cement machinery manufacturer in Hebei.

Ports in Guangdong province on China’s south coast also jumped on proposals to implement the Greater Bay Area development plan this year, which encompasses Hong Kong, Macau and nearby mainland cities.

Health Care

A gauge of drugmakers is the top performer among the CSI 300 Index’s 10 industry groups this week. China plans to increase the supply of health-care services, deepen reforms of public hospitals and support the development of Chinese medicine, according the government work report. Health insurance subsidies will also be boosted, the report said.

Lending Rules

Banks rallied after the China Banking Regulatory Commission issued a notice lowering the bad-loan coverage ratio to a minimum 120 percent from the previous 150 percent, people with knowledge of the matter said Tuesday. The move will encourage banks to recognize nonperforming loans and increase transparency of asset quality, according to analysts at brokerages including Goldman Sachs Group Inc. and China International Capital Corp.

Power Producers

Power producers surged Thursday as annual guidance on the energy sector was seen as positive, with Ping An Securities Co. saying regulators adopted a softer tone on capacity cuts for coal-powered electricity. China Resources Power Holdings Co. and Huaneng Power International Inc. jumped more than 6 percent in Hong Kong.

Telecoms

Not everyone was a winner. Telecom stocks including China Mobile Ltd. and China Unicom Hong Kong Ltd. tumbled after Premier Li Keqiang said Monday the government plans to cut mobile Internet service fees by at least 30 percent. Even so, analysts said the selloff in shares was an overreaction.

©2018 Bloomberg L.P.

With assistance from Tian Chen

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