Stock market Illustration: VCG

Foreign investment and securities firms are betting on a turnaround of China's stock market in the second half, with more stimulus policies landing to boost the economic recovery following a key meeting.

Global investment bank Goldman Sachs said in a recent analysis note that although there are still concerns over structural growth, the window for a tactical rebound in China's stock market has been opened, with the crucial meeting setting the tone for economic policy in the second half of the year.

The loosened policy tone announced by the meeting can be regarded by the market as a "surprise" for an upturn. History suggested that Chinese equities are poised to perform better in the coming months, according to the note.

Sentiment in China's A-share market has been greatly lifted and foreign capital is rooting for a recovery in the world's second-largest economy.

As an important channel for foreign-funded institutions to participate in China's A-share market, northbound funds have increased their presence significantly since the beginning of July, reflecting that their overall judgment on the long-term sound fundamentals of China's economy has not changed, experts and financial institutions said.

On Monday, net purchases by northbound capital hit 9.35 billion yuan ($1.3 billion), taking cumulative net purchases in July to 47 billion yuan, the highest since January this year, data from financial information provider Eastmoney.com showed, underscoring overseas investors' solid confidence in the ongoing recovery momentum of the Chinese economy.

Net inflows of northbound capital exceeded 180 billion yuan in the first half of 2023, up 155.33 percent year-on-year, official data showed.

A net inflow of 300 billion yuan could be expected for the full year, according to Meng Lei, a Shanghai-based strategist at investment bank UBS.

Chen Li, chief economist of Chuancai Securities, told the Global Times on Monday that foreign capital is expected to continuously flow into the A-share market in the second half of the year as more concrete measures are expected to be rolled out by various government agencies as well as local governments following a crucial meeting.

The meeting held by the Political Bureau of the Communist Party of China (CPC) Central Committee on July 24 called for measures to actively expand domestic demand, give play to the basic role of consumption in driving economic growth and introduce policies to promote private investment.

The statement was made after determining that the domestic economy is facing challenges mainly arising from insufficient domestic demand, difficulties in the operation of some enterprises, risks and hidden dangers in key areas, as well as a complex external environment.

The meeting pledged efforts to "invigorate the capital market and boost investor confidence." Arrangements for the capital market have rarely been mentioned during such meetings previously.

"We believe that the A-share market will gradually strengthen, especially in real estate, consumption and other policy-driven industries, which will become more appealing for foreign capital," Chen noted.

"Meanwhile, the impact of external factors is fading as the US Fed's rate hike cycle is nearing an end, thus easing overseas liquidity pressure," he added.

The Fed recently raised its rate by one-quarter percentage point to a target range of 5.25-5.5 percent. 

Meng estimated that the A-share market could witness around 10 percent increase in the earnings of companies listed on China's stock market this year. "We're not talking about an exorbitant forecast, but a very feasible one in reality."

With more favorable measures and pledges landing, the risk-reward ratio of A shares will be more attractive than before, Meng added.