MNI CHINA MONEY WEEK: Early Signs Of Life In Chinese Assets

--Indications Of A Tradeable Bounce After Recent Stocks Slide

By Stuart Allsopp

     SINGAPORE (MNI) - Sell China has been a major theme in global markets over

recent weeks, with USDCNH rising almost 4% from over the past two weeks since we

turned bearish on the yuan and local stocks down 5-10%, depending on the index.

Following such steep losses, and with sentiment turning increasingly bearish on

both stocks and the yuan, the recent bounce looks like it may have legs.

     In the case of Chinese financials, which dominate the Hang Seng and the

Hang Seng China Enterprises Index, the recent sell-off has seen valuations

improve further, with the HSCEI now offering a 4.4% dividend yield -- among the

highest of any major market globally. The index has also fallen back below book

value (currently at 0.96) and trades at a P/E ratio of just 8.4.

     --RIGHT NOISES

     There has been some positive news out of China this week which should

provide some fundamental support to Chinese assets. As MNI noted Friday in its

Press Digest, China will remove restrictions on foreign investment in 22

sectors, especially in the service sector, infrastructure and automobile

manufacturing, starting from July 28, 2018, according to a joint statement

MOFCOM and NDRC. Furthermore, all restrictions on foreign equity limits in the

financial sector will be removed by 2021, according to Shanghai Securities.

     --STREAMLINING

     In addition, Chinese Premier Li Keqiang called for a deepening of

administrative reform, optimization of government services and greater

government efficiency to bolster the economy, reported the People's Daily. Local

governments should decrease direct allocation of resources and intervention in

market activities as much as possible, Li stressed. China will significantly cut

the time for opening an enterprise, obtaining construction project approval and

customs clearance within five years to boost the vitality of market, Li added.

     Such reforms are exactly what China's economy needs to help it navigate its

deleveraging cycle and avoid a major hit to growth and the currency. The news

may provide an additional benefit in that it could reduce pressure from the U.S.

if Beijing opens up its market more to foreign investment. While it is early

days yet, Chinese assets are showing some signs of potential following a

dreadful two-week run.

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

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