Post-Holiday Rally Moderates

MNI (London) - The post-holiday euphoria in Chinese equities has moderated.

• The CSI 300 has pulled back from Monday’s year-to-date highs, finishing Wednesday ~0.7% above pre-holiday levels.
• Monday saw CNY9.3bn of net inflows for mainland equities via the HK-China Stock Connect, although 2/3 of that has been reversed over Tuesday & Wednesday.
• There are a couple of macro reasons for the pullback:
• Labor Day holiday tourism figures topped pre-COVID levels, although spending per head lagged ’19 levels, providing another sign of depressed Chinese consumer confidence.
• Elsewhere, some have suggested that the recent easing of property controls in Shenzhen only represented a moderate step, disappointing after the Politburo signalled greater focus on property destocking.
• Downbeat holiday home sales data was also noted.
• The CSI 300 has faded back below Nov ’23 highs, pointing to a potential ‘head fake.’ Still, it remains above 3,600 and the 200-DMA after the late April breaks.
• Local press outlets have flagged the potential for a Q2 RRR cut, although market participants remain hungry for deeper policy support.
• More meaningful policy support will likely be needed to generate an upturn in consumer confidence and may also be key for further equity strength.
• The scope for yuan weakness is one limiting factor when it comes to deploying more forceful stimulus, along with Beijing’s desire to reshape the economy.
• Zooming out, it is also worth noting that the WSJ has suggested that Beijing is wary of the potential return of Trump to the White House, limiting policy support at present.