By Ning Meng
As China accelerates stimulus across multiple industries, its sluggish economy is showing early signs of recovery, which bodes well for the A-share market.
Sentiment in the China A-share market has been weak for much of 2023.we believe this The reasons are (1) a weaker-than-expected economic recovery, (2) frustration with the lack of large-scale stimulus, (3) geopolitical tensions and (4) concerns about the housing market and longer-term structural issues.
We believe that the latter will take some time to be better understood. In the short term, while concerns about economic weakness are legitimate, we believe investors may be overreacting to recent weak data, causing pessimism to negatively impact stocks.
Importantly, the Chinese government has accelerated the pace of stimulus measures over the past few months.inside In the real estate sector, down payment ratios for both first and second homes have decreased.1
As the first nationwide easing measures in this area since 2015, this is considered to prove the government’s determination to stabilize the economy. In addition, China has relaxed guidelines for insurance companies to invest in domestic stocks, halved stamp duties on stock transactions and encouraged dividend payments to stimulate the stock market.2
After taking these steps, we begin to see “green shoots” emerge. For example, the Caixin/S&P Global Manufacturing PMI showed that factory activity in China resumed expansion in August.
New bank loans also exceeded expectations as easing policies in the real estate sector helped boost buyer confidence.3 In addition to the economic strategy, China and the United States have also established an economic and financial working group to stabilize relations.
We believe that the case for continuing to be bearish on China’s outlook is no longer valid following the implementation of a series of measures targeting key areas of concern, as policy disappointment has been said to be the main catalyst for the market downturn so far this year. Year.
We believe that more policy measures are further boosting the economy, including policies such as allowing local governments to issue special refinancing bonds, subsidies to stimulate consumption, possible further interest rate cuts, and more support for tax cuts and fee reductions for private enterprises.
Policy often precedes market reaction, which can also lead to a recovery in economic fundamentals. Markets don’t necessarily hit bottom immediately—downturns often have inherent inertia.
However, we believe this is an attractive stage for repositioning global equity portfolios, especially given that valuations in China’s A-share market are hovering near historic lows.
Data sources: (1) People’s Bank of China, State Financial Supervision Bureau; (2) Bloomberg, Reuters; (3) People’s Bank of China
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