Here are China's New Bet on Stimulus Play
Greater China Sales Traders
Summary: China market is at a time where traders are playing by the fiscal stimulus book to gauge the outlook amid weakening economic data. The valuation of Yuan is once again on the center stage as tension escalated between US and China in the form of consecutive rounds of tariff policy.
Monthly Macro Outlook: New signs of stabilization
- Compared to the previous month, there are new signs of stabilization of the economy popping up here and there, but domestic demand remains weak and headwinds from global trade developments continue to hurt the economy.
- Our leading indicator of the Chinese economy, credit impulse, which tracks the flow of new credit as % of the economy, is still in contraction at minus 3.8% of GDP. It reflects the impact of the liquidity crunch onshore and regulatory measures taken by the PBOC that especially affect small banks. Most of China’s output indicators are also down, especially electricity generation (-2.7% YoY in July), excepted for the volume of rail freight that is still well-oriented (9.1% YoY in July). For obvious reasons, we don’t expect that the recent improvement in the manufacturing sector will last. New exports orders slightly increased in July, at 46.9, but from a very low level. The dynamics is still negative for small and medium sized enterprises. The bulk of the improvement is related to large-sized companies that can find countermeasures against tariffs and have large market shares aboard.
- The latest Caixin China August manufacturing PMI rises to 50.4 from 49.9 in July. It’s highest reading since March 2019 and second consecutive month of expansion. On a more positive note, China’s total fixed asset investment growth has been broadly stable in recent months, as state investment offset lower private investment.