Chinese stocks may see a turning point in 2016, since the A-share crash has removed a lot of risk from the market, and reasons for optimism are surfacing about sectors such as consumer products, steel and transport, said Helen Zhu, head of China equities at BlackRock.

A-shares have slumped 22% this year, falling 6.42% yesterday alone, but at least the market now poses less risk to China’s financial system than in July 2015, she noted.

“2016 will be another year of volatility for China’s equity market, but [it will be] different from 2015, as many of the risks in A-shares, such as high leverage, have been resolved,” Zhu said. As a result, there will be less government intervention and more acceptance of market forces, she added.

As examples of this trend she cited the resumption of domestic initial public offerings (IPOs) from November, the IPO registration mechanism coming in the next few months and this year’s expected launch of the Shenzhen-Hong Kong Stock Connect trading link.

Foreign investors’ concerns about China largely stem from over-capacity in the energy and resources industries due to weaker domestic growth, resultant low commodity prices, and a strengthening dollar, she noted.

However, said Zhu, “the demand side is not as bad as many people think; the real problem comes from the supply side”. Hence any move from the Organisation of Petroleum Exporting Countries (Opec) to cut oil production or the Chinese government to tackle over-capacity would boost the equity market.

That’s because when investors feel more certain about a sector’s prospects, they will buy stocks even before the real economy recovers, Zhu said. She noted that the steel sector outperformed the A-share market in 2016 not because demand for the metal had grown, but because steel prices had risen a little.

The steel price index composed by Xiben New Line Stock, a Chinese online platform for commodity trading, rose 2.45% to 2,090 points from 2,040 as of December 31 and had fallen back to 2,040 as of yesterday.

Moreover, Industry leader Baoshan Iron & Steel’s stock price has only fallen 8.6% this year, much less than the market, while rival Beijing Shougang has actually gained 6.62% in 2016 as of yesterday.

Some 80% of steel producers posted losses for 2015, but the steel price rise may reduce that number to 50% this year, said Zhu, hence investors see a turning point in the sector.

At a time when China is undergoing a series of structural reforms, Zhu said her investment strategy had switched from focusing on cyclical rotation to following the reform agenda. She buys sectors that benefit from consumption growth and price rises resulting from reforms.

For instance, the relaxation of the one-child policy is expected to drive an increase of three million births a year, mostly from wealthy urban families, and boost consumption by 0.5% to 1%. (16.87 million babies were born in 2014 in China.) This will provide a boost to certain sectors, said Zhu, without elaborating.

Chinese people spent Rmb1.2 trillion ($194 billion) overseas in 2015; bringing half of that outlay onshore could result in a 1% increase in retail consumption. Hence changes, such as more cuts in tariffs on luxury goods and the set-up of duty-free shops, are expected this year, Zhu said.

Domestic deregulation driving more market-oriented pricing is set to bring price reductions in some areas in China, such as natural gas, electricity and oil prices, and price hikes in others, such as rail and air fares.

This means sectors such as transport will offer structural opportunities, because they have fixed costs but are likely to see prices rise, said Zhu. For instance, passenger rail fares in China have changed little in the past 20 years, so they are likely to move upwards.

The BlackRock China Fund A2 USD posted a loss of -2.58% in 2015, compared with a 9.4% gain for the Shanghai Composite Index and a -19.4% fall in the Hang Seng China Enterprise Index. It posted a -12.24% return for 2016 as of January 25, compared with -22.28% for Shanghai stocks and -18.25% for the HSCEI.