China’s economy: awaiting the right cues

Chinese indices’ year-to-date performance is back in the green following a raft of stimulus measures, regulatory action and stock market intervention. Investor sentiment seems to have broadly stabilized.But economic conditions on the ground remain mixed, with household confidence and the property sector still casting a shadow, as does labour market uncertainty. 

In this CIO Special, in addition to analysing recent Chinese macroeconomic data, we discuss recent central bank monetary policy, rating agency actions and stock market reforms. We assess the implications for Chinese bonds and equities, as well as the CNY.

Key takeaways:

• China’s Q1 GDP was higher than expectations. However, household confidence has yet to recover. Property sector weakness has continued, and China’s exports disappointed in March.

• The PBoC is willing to support the CNY in the near term. But the stronger USD, as well as modest domestic growth in China, could contribute to depreciation pressures in next 12 months.

• We stay cautious on Chinese equities in the short-term. We would consider reentering when there is a clearer turn-around in macro-economic data, likely in H2 this year.