(22 OCTOBER 2018)DAILY MARKET BRIEF 2:Chinese stocks make multi-year gains despite slowing economic growth

Despite a slowdown in economic growth, investors remain optimistic, pushing Chinese shares higher. The slowdown in 3Q GDP growth published last Friday at 6.50%, lowest since 2009 due to a decline in manufacturing activities, was followed by joint statements from Chinese regulators which are meant reassuring.

Indeed, while Shanghai CSI 300 had its largest intraday gain since January 2015 of 4.32%, the Hong Kong Hang Seng made a gain of +2.35%, marking its largest rise since mid-September 2018. The bounce is a welcome move on the marketplace, since Chinese shares have been declining harshly since the beginning of the year (year-to-date: CSI 300: -22.23%, Hang Seng: -12.50%) amid mounting trade tensions between China and the US and EM debt contagion risk.

However, although Chinese authorities remain worried about the economic outlook of China, announcements of supportive policies (incl. flexible credit granting) and tax cuts estimated at 1% of GDP starting next year have been confirmed. Therefore, according to recent announcement, it appears that Chinese authorities are expected to favor expansionary, growth-oriented policies rather than deleveraging.

For now, the main focus remains on Trump – Xi talks during G20 meeting, which was recently confirmed by both parties. Any positive (or negative) outcome could have a strong impact on the Renminbi. But at this time, it is expected that the PBoC maintains USD/CNY 7 mark as a key threshold. Today’s PBoC fixing remains at 6.9236.

By Vincent Mivelaz