Total Social Financing rebounded in August (RMB mn)
Source: People’s Bank of China. September 2023.
Summary
There are tentative signs of stabilisation in the Chinese economy.
China’s credit numbers beat expectations in August, the latest in a series of recent readings showing tentative signs of stabilisation in the Chinese economy. August’s new RMB loans reached RMB1,340 bn and New Total Social Financing (TSF), a broad measure of liquidity and credit in the economy, hit RMB3.12 tr. While July’s exceptionally weak numbers were an easy beat, it is encouraging to note that both the headline new loans and new TSF were higher compared to a year ago. Government bond issuance rebounded almost 4-fold relative to August last year as fiscal implementation accelerated, although property-related and corporate loan demand remained soft.
Since the end of July, the Chinese authorities have announced more stimulus measures, including lowering the amount of down payment needed for home purchases as well as reducing the interest rate on outstanding first home loans. According to Jingjing Weng, Research Lead at Eastspring Shanghai, a “policy bottom” may have been established, and historically, this is followed by an “economic bottom” as consumer confidence rebounds. Jingjing observes that China’s Industrial Finished Goods Inventory grew 1.6% in July, down from 2.2% in June. More and more industries are shifting away from active destocking, which reflects weak demand and expectations, to passive destocking, where demand and production are both improving, but demand outpaces production. Exports and imports also contracted at a slower pace in August while China’s Manufacturing Purchasing Managers’ Index picked up unexpectedly to 49.7 from 49.3. Meanwhile, China’s consumer prices returned to positive territory in August, as we suggested it would in an earlier article.
Investor sentiment towards Chinese equities is currently very bearish. With monthly Northbound outflows close to a historical peak of RMB90 bn in August, further outflows may be limited. It will be key to watch how policies take effect in the following one to two months to determine whether the recent economic momentum can be sustained. While China’s economic recovery is likely to be bumpy as the Chinese government seeks to achieve more balanced and higher quality growth over the long term, there are still many highly competitive and innovative Chinese companies within the advanced manufacturing and e-commerce sectors, as well as within the electrical vehicle and green energy supply chains. At current valuations of 9.8x price to earnings ratio1, the long-term prospects for the China A-share market appear attractive.
Interesting reads
Sources:
1 Wind. As of 12 Sep 2023.
This document is produced by Eastspring Investments (Singapore) Limited and issued in:
Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H)
Australia (for wholesale clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore, is exempt from the requirement to hold an Australian financial services licence and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Australian laws
Hong Kong by Eastspring Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
Indonesia by PT Eastspring Investments Indonesia, an investment manager that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK).
Malaysia by Eastspring Investments Berhad (531241-U).
Thailand by Eastspring Asset Management (Thailand) Co., Ltd.
United States of America (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is registered with the U.S Securities and Exchange Commission as a registered investment adviser.
European Economic Area (for professional clients only) and Switzerland (for qualified investors only) by Eastspring Investments (Luxembourg) S.A., 26, Boulevard Royal, 2449 Luxembourg, Grand-Duchy of Luxembourg, registered with the Registre de Commerce et des Sociétés (Luxembourg), Register No B 173737.
United Kingdom (for professional clients only) by Eastspring Investments (Luxembourg) S.A. - UK Branch, 10 Lower Thames Street, London EC3R 6AF.
Chile (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Chilean laws.
The afore-mentioned entities are hereinafter collectively referred to as Eastspring Investments.
The views and opinions contained herein are those of the author, and may not necessarily represent views expressed or reflected in other Eastspring Investments’ communications. This document is solely for information purposes and does not have any regard to the specific investment objective, financial situation and/or particular needs of any specific persons who may receive this document. This document is not intended as an offer, a solicitation of offer or a recommendation, to deal in shares of securities or any financial instruments. It may not be published, circulated, reproduced or distributed without the prior written consent of Eastspring Investments. Reliance upon information in this document is at the sole discretion of the reader. Please carefully study the related information and/or consult your own professional adviser before investing.
Investment involves risks. Past performance of and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the funds managed by Eastspring Investments.
Information herein is believed to be reliable at time of publication. Data from third party sources may have been used in the preparation of this material and Eastspring Investments has not independently verified, validated or audited such data. Where lawfully permitted, Eastspring Investments does not warrant its completeness or accuracy and is not responsible for error of facts or opinion nor shall be liable for damages arising out of any person’s reliance upon this information. Any opinion or estimate contained in this document may subject to change without notice.
Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).