(March 10): For all the hype in the run-up to the National People’s Congress (NPC), Chinese stocks bulls were left in the lurch as a terrible week for global markets compounded a sell-off spurred by a lack of major policy incentives.
It all began on Monday (March 6) as a consensus-lagging economic growth target of around 5% announced the previous day dashed expectations for more stimulus. While the key policy meeting brought some good news for state-owned enterprises and software developers, it fell short on big-bang incentives to boost consumption and support the key property sector.
The MSCI China Index fell each day this week to head for its worst performance since an October rout. The gauge erased all its gains for the year on Friday amid a global sell-off sparked by some trouble in the US banking sector. Foreign investors sold a net US$1.5 billion (RM6.78 billion) of onshore Chinese shares over the past five sessions via trading links with Hong Kong.
“The National People’s Congress looks like it’s not throwing up many surprises,” said Kerry Goh, the chief investment officer of Kamet Capital Partners Pte Ltd. “There’s no major policy news and earnings still have to recover in China. Up until then, the US will drive China and Asia.”
All eyes are now on the official announcement of the prime minister — widely expected to be former Shanghai party secretary Li Qiang — and key positions including the People’s Bank of China governor over the weekend.
Traders will thus be scrutinising Li’s press briefing on Monday to get a grasp on his stance on everything from private enterprise and financial markets to US relations. Any surprises or harsh tones may jolt markets again.
That said, as the new leadership’s policy priorities crystallise, the coming weeks may still offer some hope for traders who have seen an uncertain economic outlook evaporate some of the gains during the three-month reopening rally through January.
Seasoned watchers note fundamental changes underway that may reshape market dynamics, including renewed focus on “high-quality development”. Authorities’ emphasis on tech development and data security also gives a sense on what the next growth drivers may be.
The CSI 300 Index, the benchmark for onshore Chinese shares, fell 4% this week, more than the 2.2% average decline seen during the political gathering over the last 15 years. A weak Chinese consumer price inflation reading on Thursday added to caution about the strength of the economic recovery. The MSCI China index tumbled more than 7%.
Selloffs were deep in the consumer and property sectors, where the likes of Fidelity International and abrdn plc had expected support. A Bloomberg gauge of property developers plunged into a bear market as outgoing Premier Li Keqiang said the country will target disorderly expansion in the sector.
The wording around real estate suggests that “this could be about it in supportive measures for the sector,” said Wang Huan, a fund manager at Shanghai Zige Investment Management Co Ltd. “The task for property is to make sure it doesn’t become a drag, but right now I think even that is not guaranteed.”
There were still pockets of strength as NPC statements showed achieving tech self-reliance is the predominant policy goal.
There’s been an emphasis on “relying more on internal demand and enhancing science and technology”, said Jian Shi Cortesi, a fund manager at Zurich-based GAM Investment Management, adding that it reaffirmed her bets on the digital security and technological self-reliance themes in China.
Shares in software developers advanced on some days as the government said it will create a national bureau to monitor data. Chip shares may benefit amid a planned expansion in the Ministry of Science and Technology’s role to foster strategic policies, particularly as the local industry faces more curbs from the West.
Separately, state-owned enterprises also had some outsized upswings on expectations of reforms.
“The biggest point of attraction leading up to the meeting was whether the theme was going to be stabilising growth or adjusting the growth structure this year,” said Ou Xiao, a fund manager at Stone PE in Shanghai. “From what’s been revealed, it looks like more of the latter, and that means new sectors” will be favoured, he said.
The offshore yuan has weakened 1% versus the greenback since the NPC kicked off, nearing the psychological level of seven per dollar. “There was little enthusiasm for some of the announcements emanating from the NPC,” Kiyong Seong, the lead Asian macro strategist at Societe Generale SA in Hong Kong, wrote in a note. “With no major positive surprises from the NPC, however, the yuan will likely lag Asian foreign exchange’s recovery from the recent sell-off driven by the repricing of US Federal Reserve rates.”
10 March 2023, 18:30pm +08