How to Make Money Out of China's National People's Congress

BEIJING, BLOOMBERG -- China’s biggest political event of the year is a key opportunity to gather valuable trading intelligence about the world’s second-largest economy.

The National People’s Congress brings almost 3,000 delegates from all over China -- including some of the country’s richest and most influential businesspeople -- to Beijing each year to discuss policy and the way forward. It kicked off Monday with the release of Premier Li Keqiang’s work report, which covered everything from plans for a property tax to cutting air pollution.

While President Xi Jinping and his top cadres have the final say on what’s pushed forward, a range of issues are likely to get an airing at the discussion “sessions” to be held over the next fortnight. Xi’s push to solidify his position at a level alongside past leaders Mao Zedong and Deng Xiaoping makes this year’s NPC all the more potent for market watchers.

Here are some themes taking center stage, and how you can trade them:

The Debt Crackdown

The push to stem credit growth and rein in financial risk will be a key topic during the summit. In his report, Li said China will keep the macro leverage ratio “basically stable,” and that regulatory supervision of shadow banking and internet finance will be boosted.

New measures on the debt front could could exert pressure on the bond market in the long term, said Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. Winners from further crackdown moves would be large banks and insurers as reform improves their asset quality, according to Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd.

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Deleveraging also serves China’s push toward higher-quality rather than faster economic growth. Industries like advanced manufacturing, technology, big data and artificial intelligence are key to this, according to analysts at SWS Research Co. in Shanghai.

Greening China

Xi’s address to the twice-a-decade Communist Party congress in October was heavy on environmental rhetoric, triggering a rally in green stocks. A push to switch millions of households in northern China from coal to gas heating this winter didn’t go smoothly, but did result in reduced air pollution in places like Beijing. The premier also went green Monday, announcing a 19 percent hike in spending on anti-pollution initiatives.

Policies in this area potentially benefit businesses in new energy and manufacturers of environmental-protection machinery, Pacific Securities Co. said. So-called old economy stocks in the steel, coal and energy industries could take a hit.

Dozens of energy sector chieftains attend the NPC, including the chairmen of China National Petroleum Co. and Sinochem Group and the general manager of China Energy Investment Corp. -- now the world’s biggest power company -- as well as a slew of renewable energy company bosses.

China is pushing hard to become the Detroit of electric cars, with the government targeting 7 million EVs by 2025. Shares of major domestic manufacturers -- SAIC Motor Corp., Great Wall Motor Co., Geely Automobile Holdings Ltd. and the Warren Buffett-backed BYD Co. -- could react to developments on this front, with Premier Li saying Monday that China planned to further open up the new-energy vehicle sector to foreign investors.

The Housing Market

China has gone through bouts of tightening limits on property sales and then easing them, only exacerbating the housing-market frenzy by prompting speculators to second-guess policy changes. China will push forward with a property tax, the premier said Monday.

The NPC putting such a levy on its 2018 legislative agenda could impact market sentiment, Wang Tao, head of China economic research at UBS Group AG in Hong Kong, said before Li’s work report was issued. BBVA’s Xia said a tax would mean large numbers of unoccupied properties would likely be sold.

Real estate stocks have been some of the best performers among Chinese equities over the past year, with developers like China Evergrande Group, Sunac China Holdings Ltd. and Country Garden Holdings Co. up at least 140 percent.

Gambling, and “Reform”

Every Chinese province has discussion sessions on issues unique to their area, and the meetings held by Hainan, an island off China’s southern coast, will hold particular allure.

The province is home to besieged conglomerate HNA Group Co. and is said to be mulling allowing online gambling, a lottery or sports betting. Casinos are banned everywhere in China but Macau, so any news on this front could impact gambling stocks in the enclave, as well as property developers, hotel companies, tourism firms and retailers.

“Reform” has been a buzzword among China’s policy elite, with Liu He, Xi’s top economic adviser, saying at Davos that China would surprise the world with its capacity for change. If the “reform concept” is pushed at the NPC, stocks related to China’s Belt and Road initiative, the development of the Shanghai Free Trade Zone, as well as Hainan could benefit, according to Zhongtai Securities Co.

“The market will be extraordinarily sensitive to policy signals,” said Credit Suisse Group AG analysts Vincent Chan and Hu Shen.