Chinese & HK Equities Firm, USD/CNH Briefly Back Above CNH7.04

Chinese equities firmed on Monday, with the CSI 300 adding 0.6%, while a bid in Hong Kong-listed Chinese firms supported the Hang Seng, which added 1.2%. A rally in microchip names was noted on the back of Chinese protectionist action in the sector.

• Net northbound flows via the Hong Kong Stock Connect schemes revealed a reversion to net purchases of mainland equities on the part of international investors, although the daily net flows were modest when we zoom out, remaining below the CNY5bn mark, as has been the general case in recent weeks.
• Sino-U.S. tones have been mixed, with the well-documented Chinese action against Micron and some Chinese verbal backlash on broader Sino-U.S. policy choices out of Washington evident, although China’s Commerce Minister was a little warmer, underscoring the country’s commitment to opening up in a meeting with U.S. corporates.
• USD/CNH briefly ticked back above CNH7.04, and last sits 350 pips or so shy of last week’s highs. A quick reminder that last week saw the initial round of verbal intervention from the PBoC & SAFE, with those bodies voicing their concern over currency weakness, vowing to curb speculation.
• Goldman Sachs have revised their forecasts for USD/CNY to CNY7.10, CNY7.00 and CNY6.80 in 3-, 6- and 12-months (vs. CNY6.80, CNY6.70 and 6.50 previously) to reflect their expectations for a RRR cut at the backend of Q2 and a softer goods trade surplus in the months ahead. Further out, they believe that “a stable China activity picture along with lower core rate volatility should allow the CNY to recover, but the scope for CNY strength is likely to remain limited without further support from better data or policy.”