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
This communication is issued by Eurizon SLJ Capital Limited (“ESLJ”), a private limited company registered in England (company number: 09775525) having its registered office at 90 Queen Street, London EC4N 1SA, United Kingdom. ESLJ is authorised and regulated by the Financial Conduct Authority (FRN: 736926). This communication is treated as a marketing communication intended for professional investors only and is provided only for information purposes. It has not been prepared in accordance with legal and regulatory requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. It does not constitute research on investment matters and should not be construed as containing any recommendation, advice or suggestion, implicit or explicit, with respect to any investment strategy or financial instruments, or the issuers of any financial instruments, or a solicitation, offer or financial promotion relating to any securities or investments. ESLJ and its affiliates do not assume any liability whatsoever for the contents of this communication, save to the extent agreed in any written contract entered into between ESLJ and the recipient, and do not make any representation or warranty as to the accuracy or completeness of any information contained in this communication. Views are accurate as at the time of publication. Opinions expressed by individuals are their own and do not necessarily reflect those of ESLJ or any of its affiliates. The value of any investment may change and an investor may not get back the original amount invested. Past performance is not an indicator of future performance. This communication may not be reproduced, redistributed or copied in whole or in part for any purpose. It may not be distributed in any jurisdiction where its distribution may be restricted by law and persons into whose possession this communication comes should inform themselves about, and observe, any such restrictions.
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.