CHINESE equities will make a comeback this year amid potentially significant help from the government and likely improved relations with the United States.

That’s according to Nomura Holdings Inc.’s head of Asia excluding Japan research Jim McCafferty, who sees the stock market as an important domestic policy tool.

The People’s Bank of China could start buying Chinese equities in 2019 to encourage discretionary spending, as more than 90 percent of the stock market is held by domestic investors, McCafferty said in a report.

“China will go beyond historic measures to stimulate the stock market. Specifically, China might mandate the People’s Bank of China with a role in buying up equities,” he said.

A strong equities performance “would be much more effective at stimulating domestic consumption than the construction of another railway line.”

It isn’t that the government hasn’t been active in stocks in the past. The National Team of government funds has purchased stocks through various entities before. Nomura estimates that the group, which includes the State Administration of Foreign Exchange, controls around 3 percent of the A-share market.

Its exposure “looks relatively modest” compared with other countries — it’s about half, in percentage points, of what Japan’s GPIF owns in its domestic stock market, and about a third of what South Korea’s National Pension Service holds of the nation’s equities, McCafferty noted in the report.

(SD-Agencies)