Investors' Skepticism over 2022 Growth Target of 5.5% Keeps Growing

• Investors' skepticism over China’s 2022 growth target of 5.5% has grown considerably as the drastic lockdowns imposed by the government is expected to significantly weigh on growth expectations.
  • Fitch recently announced that it will cut China’s 2022 growth forecast to 4.3% (vs. 4.8% previously).
• In the past two months, China officials have been doing whatever they can to ease financial conditions and stimulate domestic risky assets, which have been severely impacted by the zero-Covid policy.
• In addition to the clear policy easing signals, regulators announced in the middle of March that they were mulling measures to crack down on ‘malicious short sellers’.
• China also announced on Thursday that it will cut the A-share stock transaction fee to 0.01% (of total amount) in Shanghai and Shenzhen stock exchanges (from 0.02%) to boost equities, which are currently ‘cheap’ (using a z-score P/B approach).
• Moreover, officials are preparing to hit a pause on its campaign against tech companies.
• Hence, the main question that investors have been recently asking is the following: Will all these measures (policy easing, rising liquidity, regulation…) be enough to stimulate domestic equities?
• Even though we saw that the rebound in China ‘liquidity’ since the start of the year has been pricing higher equities in the near term (particularly tech stocks, which have historically been very sensitive to liquidity metrics, see chart), the ‘bearish’ momentum on the Nasdaq combined with the rising geopolitical uncertainty are certainly not helping China equities.

Source: Bloomberg/MNI