Chinese Equities: July Surge and August Setback

Highlights in this article reveal:  

• What significant measures were unveiled during the July Politburo meeting to support the private sector? 
• Positive signals are emerging in certain sectors of the Chinese economy despite the challenges. 
• The specific goals of the 31-point plan during the Politburo meeting to support the private sector. 

Chinese equities experienced a strong rebound in the final week of July following the dovish signals sent by the latest Politburo meeting, boosting market sentiment. As a result, the MSCI China and MSCI China A Onshore indices recorded significant gains of 10.9% and 5.7% respectively for the month. However, the rally was short-lived, and gains were given up in August.  

This reversal was attributed to the absence of meaningful policy actions and the re-emergence of property market woes, triggered by Country Garden, one of China’s largest private developers, restructuring their bond payments. 

During the July Politburo meeting, particular attention was given to addressing local government debt risks, stimulating domestic consumption, and revitalising the capital markets.  

Notably, a comprehensive 31-point plan was unveiled, aiming to bolster the private sector by eliminating market access barriers and safeguarding the property rights of private firms and entrepreneurs. Several fund managers believe this is a significant and sizeable gesture from the government. 

Notably, a comprehensive 31-point plan was unveiled, aiming to bolster the private sector by eliminating market access barriers and safeguarding the property rights of private firms and entrepreneurs. Several fund managers believe this is a significant and sizeable gesture from the government. 

On the macro front, recent data confirmed the poor performance of the Chinese economy. In July, the value of new home sales by the 100 largest property developers witnessed a year-on-year decline of 33.1%, marking the most significant drop in a year. Although new measures are gradually being introduced, they have yet to provide sufficient stability to the market. 

On a more positive note, certain sectors are undergoing rapid destocking, with inventory levels returning to normal, indicating a potential fundamental improvement in the upcoming months.  

On a more positive note, certain sectors are undergoing rapid destocking, with inventory levels returning to normal, indicating a potential fundamental improvement in the upcoming months. With more policy interventions expected, we maintain cautious optimism about an economic recovery in the latter part of the year. Nevertheless, we remain vigilant and closely monitor the situation unfolding in the property sector, which is a critical factor influencing overall economic prospects. 

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