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CHINA: Equities Lower Ahead Of Saturday MoF, Another Press Briefing On Monday

CHINA
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The tone to China stocks is to the downside in early Friday dealings. The CSI 300 last off around 1%, so largely reversing Thursday's gains. This comes ahead of tomorrow's MoF briefing on fiscal policy. A BBG survey of market participants had the majority expecting CNY 2trln in fresh fiscal stimulus through to 2025 (see this link), although it remains to be seen what will be announced this weekend. 

  • Also note earlier headlines that the NFRA, MIIT and SAMR will hold a press briefing on Monday. The headlines suggested stepping up support for firms will be in focus (per BBG).
  • This comes after yesterday the PBoC opened applications for the swap facility designed to help support equity markets. While only a modest CNY 500bn is initially available there seems ample room for this to grow and widen in terms of accepted collateral.
  • This measure may not be designed to propel the market higher, but help provide a backstop, particularly during times of market turmoil.
  • One area we will be focused on is the extent to which the market is upgrading its China growth projections. The chart below shows the J.P. Morgan China growth revision index, which measures the extent to which JPM economists are either revising up or down their China growth outlook. So far they haven't shifted higher. We would also note the broader consensus expectations, as compiled by BBG haven't moved higher either.
  • It may be difficult to sustain upside equity momentum without an improved growth outlook. The 2015 equity move higher wasn't accompanied by any move higher in growth expectations and ultimately got unwound. Hence spill over effect from any fresh policy initiatives from the authorities onto the growth outlook will be a key longer term focus point.
  • It is a sea of red for the China onshore markets today with the Beijing SE 50 Index which outperformed on Thursday has all but erased those gains to trade 4.50% lower. Tech is the worst performing sector with the CSI 300 Tech Index -5.20%, following By Healthcare -4.35% while Utilities trade +0.50%.

Fig 1: CSI 300 Index & J.P. Morgan China Growth Revision Index 

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The tone to China stocks is to the downside in early Friday dealings. The CSI 300 last off around 1%, so largely reversing Thursday's gains. This comes ahead of tomorrow's MoF briefing on fiscal policy. A BBG survey of market participants had the majority expecting CNY 2trln in fresh fiscal stimulus through to 2025 (see this link), although it remains to be seen what will be announced this weekend. 

  • Also note earlier headlines that the NFRA, MIIT and SAMR will hold a press briefing on Monday. The headlines suggested stepping up support for firms will be in focus (per BBG).
  • This comes after yesterday the PBoC opened applications for the swap facility designed to help support equity markets. While only a modest CNY 500bn is initially available there seems ample room for this to grow and widen in terms of accepted collateral.
  • This measure may not be designed to propel the market higher, but help provide a backstop, particularly during times of market turmoil.
  • One area we will be focused on is the extent to which the market is upgrading its China growth projections. The chart below shows the J.P. Morgan China growth revision index, which measures the extent to which JPM economists are either revising up or down their China growth outlook. So far they haven't shifted higher. We would also note the broader consensus expectations, as compiled by BBG haven't moved higher either.
  • It may be difficult to sustain upside equity momentum without an improved growth outlook. The 2015 equity move higher wasn't accompanied by any move higher in growth expectations and ultimately got unwound. Hence spill over effect from any fresh policy initiatives from the authorities onto the growth outlook will be a key longer term focus point.
  • It is a sea of red for the China onshore markets today with the Beijing SE 50 Index which outperformed on Thursday has all but erased those gains to trade 4.50% lower. Tech is the worst performing sector with the CSI 300 Tech Index -5.20%, following By Healthcare -4.35% while Utilities trade +0.50%.

Fig 1: CSI 300 Index & J.P. Morgan China Growth Revision Index 

Keep reading...Show less