China/Hong Kong Weekly Market Pulse: Potentially Tradable Rally Despite Tech Tensions China/Hong Kong Weekly Market Pulse: Potentially Tradable Rally Despite Tech Tensions China/Hong Kong Weekly Market Pulse: Potentially Tradable Rally Despite Tech Tensions

China/Hong Kong Weekly Market Pulse: Potentially Tradable Rally Despite Tech Tensions

Macro 5 minutes to read
Redmond Wong

Chief China Strategist

Summary:  Despite lingering uncertainties and negative sentiment toward Chinese stocks, they offer attractive valuations, with the Hang Seng Index trading at 9x earnings and CSI300 at 12x earnings for 2023. Last week it started strong, bolstered by eased property regulations and a resurgence in manufacturing PMI. However, concerns over the services sector, U.S.-China tech tensions, and market performance dimmed sentiment. CPI rebounded, while PPI improved. Notably, August saw a substantial increase in new Yuan loans and government bond financing, indicating economic support. Key data to watch this week include industrial production, retail sales, and fixed asset investment trends.

Key Highlights from the Article

  • Chinese stocks offer potentials for a tradable rally


  • Market sentiment fluctuated due to concerns over tech tensions and PMI data.


  • August saw a significant increase in new Yuan loans and government bond issuance.


  • CPI rebounded, while PPI showed signs of improvement in China's economy.


  • Key data this week includes industrial production, retail sales, and fixed asset investment.



Attractive Valuation and Light Positioning Amidst an Upcoming Cyclical Recovery

Despite a series of regulatory measures aimed at revitalizing the property and mortgage markets, market responses have remained somewhat subdued. Nevertheless, we are optimistic that these initiatives will contribute to a surge in mortgage loan growth, building on the rebound witnessed in August aggregate social financing data (see below). Our outlook suggests the likelihood of a cyclical recovery in the Chinese economy, particularly in Q4, even though the medium-term prospects remain uncertain and riddled with challenges. Notably, Chinese stocks bear a significantly below-average weight in institutional investors' portfolios, compounded by prevailing negative sentiments. Additionally, a series of economic and earnings growth downgrades by analysts has set a relatively low bar for the Chinese and Hong Kong equity markets to surpass.

As of the latest data, the Hang Seng Index is currently trading at around 9x earnings for 2023 or 6x operating cash flows. Meanwhile, the CSI300 is trading at 12x earnings for 2023 or 8x operating cash flows. These valuation multiples present attractive opportunities for investors seeking a potential tradable rally in the context of the upcoming cyclical recovery.

Recap of Key Developments from the Previous Week

The week commenced on a robust note, driven by a series of measures aimed at easing regulations in the property market and mortgage sector. These initiatives were particularly designed to reduce costs for prospective homebuyers, especially those eyeing properties in first-tier cities. For a more comprehensive discussion of these policies, please refer to our Weekly Market Pulse from last week. The market rally received an additional boost from the resurgence of the Caixin China Manufacturing PMI, which returned to expansionary territory, registering at 51.00—the highest level since the 51.6 reading in February. Furthermore, semiconductor stocks and other companies within Huawei's supply chain witnessed increased demand after Huawei unveiled its Mate 60 Pro mobile phone, showcasing impressive 5G capabilities. This development implied a significant breakthrough in its processor supplier, SMIC, which has apparently entered commercial production of 7nm chips.

However, as the week progressed, market sentiment began to wane in response to a significant drop in the Caixin Services PMI, which fell to 51.8 in August from July's 54.1. This decline reignited concerns about the challenges facing the Chinese economy. Moreover, investor anxiety mounted over the rising risks of the United States tightening semiconductor technology restrictions on China, with the House of Representatives' Committee for China advocating an end to all technology exports to Huawei and SMIC. Fears of escalating tensions between China and the U.S. in the technology sector were further fueled by reports in foreign media outlets suggesting that Chinese authorities were restricting government and state-owned enterprise employees from bringing iPhones to their workplaces. While it has long been the case that officials working in sensitive government departments were not allowed to use iPhones for work purposes, anecdotal events and social media discussions indicated an increase in government departments urging officials to abstain from using iPhones. However, a nationwide directive imposing widespread restrictions on iPhone use in government departments and state-owned enterprises has yet to be confirmed and in our opinion tends to be unlikely. These concerns surrounding the intensification of the technology war between China and the U.S. cast a shadow over market sentiment, resulting in negative market performance. The Hang Seng index was down nearly 1% during a rainstorm and flooding-shortened week, while the CSI300 experienced a 1.4% decline.

CPI Bounces Back to Positive Territory in August, Indicating Encouraging Signs

China's Consumer Price Index (CPI) rebounded moderately, rising by +0.1% year-on-year, as expected, after July's deflationary reading of -0.3%. This upturn was supported by a low base effect from the previous year. Notably, non-food inflation accelerated to +0.5% year-on-year in August, up from 0.0% in July, while the Core CPI, which excludes food and energy components, remained steady at +0.8% in August. On a monthly basis, the CPI increased by +0.3% in August, compared to +0.2% in July. In contrast, the Producer Price Index (PPI) continued to contract, but at a less severe rate, declining by -3.0% year-on-year, showing improvement from July's -4.4%. This improvement was attributed to both a low base from the previous year and the recovery in domestic and global commodity prices.

Sharp Increase in New Yuan Loans and Government Bond Issuance in August

Released on Monday, China witnessed a significant surge in new Yuan loans during August, surpassing expectations, reaching RMB 1,360 billion, compared to RMB 346 billion in the previous month and RMB 1,250 billion in August of the previous year. This surge can be attributed to increased regulatory encouragement for banks to extend loans and favorable seasonal factors. Corporate loans played a significant role in this increase, surging to RMB 949 billion in August, up from RMB 238 billion in July, surpassing the previous year's RMB 875 billion. Notably, the medium to long-term portion of new household loans, primarily mortgage loans, rebounded to RMB 160 billion, reversing a net repayment of RMB 67 billion in July. The growth rate of outstanding RMB loans remained steady at +11.1% year-on-year, mirroring the previous month's figure.

Additionally, new government bond financing surged to RMB 1,180 billion in August, up from RMB 411 billion in the previous month and RMB 305 billion a year ago. With robust loan growth and the front-loading of local government bond annual issuance quotas, the aggregate social financing data for August reached RMB 3,120 billion, a substantial increase from July's RMB 528.5 billion. The year-on-year growth of outstanding aggregate social financing slightly increased to +9.0% in August, compared to 8.9% in July.

Key Data to Watch This Week

This week, keep an eye on the upcoming activity data releases. According to Bloomberg consensus forecasts, we can expect several notable trends:

Industrial Production: In August, industrial production is projected to rise by 3.9% Y/Y, an increase from July's 3.7%. This uptick is a reflection of robust manufacturing PMI data, indicating a strengthening industrial sector.

Retail Sales: August is expected to bring a 3.0% Y/Y growth in retail sales, outpacing the 2.5% growth seen in July. This growth is anticipated to be driven by increased auto sales and catering services.

Fixed Asset Investment: While infrastructure construction was likely supported by the front-loading of local government bond issuance in August, there are factors to consider. The comparison with a high base from the previous year and continued weakness in property construction may restrict the growth of fixed asset investment for August. Consequently, the Bloomberg consensus suggests a year-to-date slowdown in fixed asset investment, declining to 3.3% Y/Y from the previous rate of 3.4%.



The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.