Signals out of Beijing this past week don’t bode well for China stocks
Preliminary PMI survey data put out by HSBC and Markit showed growth momentum among manufacturers extended its rebound into October, marking the third-straight month of gains, while housing prices in leading cities continued to pick up. But be wary of reading good news into the figures.
A few months back concerns had been on slowing momentum and the need for credit loosening. The policy easing that followed helped to fuel a rally in mainland stocks underway since June.
Indications that growth momentum is now back on track likely adds up to a policy reassessment towards a chillier credit backdrop in the months ahead, according to Société Générale strategist Wei Yao in Hong Kong.
“Seeing growth stabilising, policymakers seem to be shifting their focus back to risk management,” Yao said in a note to clients on Thursday.
Indications of tightening can already be seen in moves to cool property prices in the nation’s capital, unveiled by Beijing’s municipal government on Wednesday.
The plan, which will include construction of around 70,000 homes over two years, will likely be copied by other municipalities, according to Yao. She expects other big cities to unveil similar supply-boosting measures in coming months.
“The leadership still intends to develer the economy, which is the main reason behind our call that the secular deceleration trend is far from over,” Yao said.
Meanwhile, Japanese bank Nomura on Friday also flagged what they saw as a major turning point for China equities.
The bank’s Hong Kong-based strategists said it was to time to “take some money off the table”. The bearish call on the outlook for the MSCI China marks the first downbeat view by Nomura strategists on the sector since March.
The bank became upbeat on China in mid-April, about two months before stocks bottomed.
Interestingly, Nomura said it didn’t think investors will applaud in the short term announcements of structural changes that could be forthcoming at the autumn plenum.
“We think that things may not get that much better in the short term, so there is a downward and sideways bias towards the index return,” Nomura strategists said.
An agenda expected to touch on issues of land reform, the one-child policy, or urbranisation won’t capture the imagination of a market that tends to look ahead no more than three to six months, Nomura said.
Still, the bank said it had an upbeat view of China equities over a two-to-three-year period. It said investors with a long-term outlook could use any major pullback in coming months as an opportunity to load up.