Chinese Equity Market Bounces Back

Highlights in this article reveal:  

• How did June’s Chinese equity market perform, and what factors led to its stabilisation? 
• What is the expected impact of the HKD-RMB Dual Counter Model on the market? 
• How did the expected economic stimulus and actual policy measures influence the market’s performance? 

• Which sectors stood out in June, and what was the impact of the tax exemption on Electric Vehicle makers? 
• In light of recent economic data and performance, what measures is the Chinese government expected to take? 

The Chinese equity market stabilised in June after a challenging May 2023, with the MSCI China index up 4.0% and the MSCI China A Onshore index down 0.6%. The market had a strong rebound in the first half of the month due to growing expectations of more economic stimulus and the launch of the Hong Kong Dollar (HKD)-Renminbi (RMB) Dual Counter Model. This model allows investors to trade selected Hong Kong-listed stocks in both the Hong Kong dollar and Chinese yuan, as such it is expected to bring incremental flows to the market.  

There was a temporary ease in geopolitical tensions following US Secretary of State, Antony Blinken’s visit to Beijing and the resumption of talks between the US and China.  

In addition, there was a temporary ease in geopolitical tensions following US Secretary of State Antony Blinken’s visit to Beijing and the resumption of talks between the US and China. However, later in the month, the market gave up some earlier gains as hopes for stimulus failed to materialise with a smaller than expected Loan Prime Rate cut of 10bps. Additionally, the Chinese currency continued to weaken over this period. 

Information Technology and Consumer Discretionary were the top-performing sectors in June, with Electric Vehicle makers particularly benefiting from a purchase tax exemption that has been extended until 2027. Conversely, Healthcare, Energy, and Telecommunications underperformed. Following a substantial re-rating, State-owned enterprises in general experienced profit-taking since the beginning of the year, driven by market sentiment. 

Following a substantial re-rating, State-owned enterprises in general experienced profit-taking since the beginning of the year, driven by market sentiment. 

On the macro front, recent data confirmed the poor performance of the Chinese economy. Property sales by floor area also continued to decline, down 28% year-on-year in June. The lacklustre recovery has prompted the Chinese government to be more proactive in providing additional support. As a result, top officials in recent State Council and Politburo meetings have delivered dovish signals to the market, pledging to tackle unemployment, boost consumption, and support private sector businesses. Moreover, further interest rate cuts, new issuance of infrastructure bonds, and policy easing in the property sector are also expected. 

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