image

The Chinese A share rallied more than 10% in July, and the negative correlation between the A share and the onshore bond market was especially strong this month. Better-than-expected economic recovery, continuous financial reform and increased foreign inflows were the main positive factors supporting Chinese equities, while the US-China tensions added some volatility to the equity market.

Economic activities continued to pick up in July due to the well-managed second wave of Covid-19 cases in northern China. With the exception of retail sales, all data released this month beat market expectations, in particular the Q2 GDP growth figure of 3.2%, which outperformed major economies. Despite some structural divergence between sectors, we continue to believe that the economic recovery is the key market trend and that the Chinese economy will outperform the rest of the world for the rest of the year. This should continue to support Chinese assets and the RMB. However, this does not mean the economy will overshoot, as policy makers will likely switch their attention from conventional stimulus policies to structural, targeted stimulus policies, as was addressed in the recent politburo meeting.

In the meantime, the fast recovery in the property sector also drew the attention of the policy makers, and the tenet that “houses are for living, not for speculation” has also been addressed again. All along, it may be worth underscoring that the PBOC has been critical of the muscular monetary policies of the developed West, arguing that these central banks have spent their last bullets. Consistent with this mindset, the PBOC has quietly endorsed the backup in interest rates in Q2. In addition, we also suspect that this unusual stance of the PBOC may also be related to Beijing’s desire to keep RMB strong through high interest rates.

The above article is an extract from our regular fund manager commentaries.

To subscribe to our fund manager commentaries, please email sales@eurizonslj.com

Disclosure

None of the contents of this document should be understood as constituting research on investment matters, or as a recommendations, advice or suggestions, implicit or explicit, with respect to an investment strategy involving the financial instruments discussed, or the issuers of the financial instruments, nor as a solicitation or offer, nor as consulting on investment matters, of a legal, fiscal, or other nature. All the companies of the Intesa Sanpaolo Group, its administrators, representatives, or employees, decline any responsibility (fault-based or otherwise) deriving from indirect damages potentially caused by the use of this communication or its contents, or in any case deriving in relation to this document, nor may they be consequently held liable for any of the above. The information provided and the opinions contained in this document are based on sources considered reliable and in good faith. However no declaration or guarantee is offered by Eurizon SLJ Capital Limited, explicitly or implicitly, on the accuracy, exhaustiveness and correctness of the information, and there is no guarantee that results, or any other future events, will be compatible with the opinions, forecasts, or estimates contained herein.

Views accurate as at the time of publication. Opinions expressed by the authors are their own and do not necessarily reflect those of Eurizon SLJ Capital Limited, Eurizon Capital SGR or the Intesa Sanpaolo Group.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

ESLJ-281020-I16

Our Research

Our written research products aim to provide unique and orthogonal insights on key global economic and policy issues in a timely fashion.

Aerial view of forest during  colourful autumn season.