Chinese Equities Struggle Amid Offshore Sales, Benchmark Rates Nudge Lower

Chinese equities closed a touch lower at the index level (CSI 300 -0.5%), with June’s largest day of net sales of mainland equities via the Hong Kong Stock Connect schemes weighing on both equities and the yuan. Familiar worries were noted on this front (China’s economic data trajectory, the lack of meaningful fiscal stimulus observed thus far and Sino-U.S. tensions).

• UBS slashed their MSCI China price target, joining several other sell-side names.
• Net liquidity injections from the PBoC had little impact.
• 10-Year CGB yields and 5-Year IRS rates eased by 1-2bp, continuing to operate above their recent lows.
• Official Chinese PMI data headlines the domestic docket ahead of the weekend, with plenty of macro focus there given the recent run of soft data and interest in potential stimulus measures (participants continue to eye the July Politburo meeting as the most likely ground for any such announcement).
• Note that Chinese media outlets have flagged the potential for a “significant” pickup in June’s credit data, citing analysts (we will see if this rings true over the coming weeks), while analyst comments re: the potential for a Q4 return to growth in Chinese industrial profits also did the rounds (after Wednesday’s disappointing data).