-- Chinese stocks may still have space to push higher after a stellar rally over the past three months, analysts at CICC wrote in a note, citing persistent policy support and improving economic conditions. 

China’s and indexes rebounded some 17% and 18%, respectively, from multi-year lows hit in early-February. They were now close to entering a technical bull market from those lows. 

While most sectors benefited from a mix of bargain buying and policy hopes, CICC analysts noted that the agriculture sector outperformed during the rally, as did the heavily battered property sector. 

CICC analysts said that China’s economic recovery was still underway despite some recent signs of cooling, although it still faced some near-term challenges. Beijing was also seen steadily rolling out policy support for the economy, as well as more capital market reforms.

Recent, laggard performances in U.S. and Japanese markets- which were the top performers through 2023- also drew some foreign capital flows into Chinese markets. This trend may continue in the coming months, especially amid uncertainty over the path of interest rates in both countries. 

Watch for these three themes in Chinese markets- CICC

CICC analysts said three major themes are expected to take prominence in Chinese markets as they recover this year. 

Firstly, growth-oriented technology sectors exposed to growing industry trends, such as semiconductors and communications, which have shot into the spotlight thanks to increased interest in artificial intelligence. 

Secondly, core asset makers- specifically those of lithium-ion batteries, photovoltaic power and wind energy- were due for recovery after seeing sharp corrections in the past two years. But they were also set to benefit from increased policy support. 

Thirdly, CICC analysts said that sectors with “booming business operations and high earnings visibility,” namely new energy vehicles and similar goods that benefit from a global expansion. 

But the Chinese economy still faces increased headwinds. The U.S. government this week imposed higher tariffs on the country’s key emerging sectors, such as EVs, medicines and semiconductors. 

The Chinese government is also grappling with higher debt levels, as it struggles to increase local liquidity conditions and foster an economic recovery.