OCBC TREASURY RESEARCH - Greater China - Week in Review 28 March 2022
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
OCBC TREASURY RESEARCH
Greater China – Week in Review
28 March 2022
Highlights: Additional pain points
Tommy Xie Market sentiment remained fragile last week despite the reassurance from Vice
Xied@ocbc.com Premier Liu He to stabilize market expectation as investors are waiting for more
concrete measures. The March LPR fixing was kept unchanged again. It remains to
be seen how monetary policy will take more initiative to deal with the uncertainty.
Herbert Wong
herberthtwong@ocbcwh.com We believe the messages from the latest financial stability and development
committee meeting to address five pain points including monetary policy, property
risk, ADR, platform economy and Hong Kong market are serious.
Nevertheless, there are two additional pain points which are beyond committee’s
reach but has profound impact on market sentiment including China’s Covid-19
strategy and ripple effect from the Ukraine crisis.
Shanghai stepped up its people movement control and announced half lockdown
on Sunday. The initial optimism that China is focusing more on the fine balance
between maximum effect in control and minimum cost quickly faded away after
Shanghai failed to stop the spread of Covid-19 with its targeted lockdown model.
We think the failure of targeted lockdown model is a big setback as Shanghai has
been the testbed for China to explore alternative model to minimize the social
costs. This may delay China’s plan to ease its dynamic zero Covid policy. Market will
continue to watch out for the development of Covid-19 situation in China.
Elsewhere, the Biden Administration announced to reinstate tariff exemptions on
352 Chinese products. Nevertheless, we think the grant of waiver has limited thing
to do with the improved US-China trade relationship, instead it is because of the
efforts to reduce the inflationary pressure and economic pains to American
consumers.
The concerns remained after the Biden Administration continued to intimidate
China over dealing with Russia. Nevertheless, the deeper integration between
China and the global economy showed the limit the US can push.
Foreign investors earned US$417.4 billion return from China in 2021, highest in
record. The investment return improved to 6% from 5.7% in 2020. This is much
higher than average 2.8% Chinese investors earned from their investments
overseas. China remains an appealing market to foreign investors. This also showed
that the hurdle for the economic decoupling between China and the west is much
higher.
Overall, we believe China has enough policy room to deal with five pain points
highlighted by Vice Premier Liu He. However, the two additional pain points will be
the key to be watched out for in the near term.
According to the Financial Secretary, Hong Kong’s economy is likely to contract in
the first quarter of 2022 after recording four consecutive quarters of expansion, on
the back of shrinking retail sales and slowing exports. The impacts stemming from
the pandemic, geopolitical tensions, rising inflation exerted immense pressure on
the local economy. We expect the pace of economic recovery will slow to 2% in
2022, from that of 6.4% in the previous year.
Treasury Research & Strategy 1OCBC TREASURY RESEARCH
Greater China – Week in Review
28 March 2022
Key Events and Market Talk
Facts OCBC Opinions
▪ Shanghai stepped up its people movement control ▪ The initial optimism that China is focusing more on the fine
and announced half lockdown on Sunday. The balance between maximum effect in control and minimum
east part of Huangpu river will be under lockdown cost quickly faded away after Shanghai failed to stop the
from 28 March to 1 April for mandatory testing spread of Covid-19 with its targeted lockdown model.
while the west side of Huangpu river will be under ▪ We think the failure of targeted lockdown model is a big
lockdown from 1 April to 5 April for the testing. setback as Shanghai could be an ideal model for China to
transit towards living with virus gradually if successful. This
may delay China’s plan to ease its dynamic zero Covid policy.
▪ The Biden Administration announced to reinstate ▪ The waiver will apply retroactively from last October until the
tariff exemptions on 352 Chinese products. end of 2022. This accounted for about two thirds of waivers
that had expired at the end of 2020.
▪ The grant of waiver has limited thing to do with the improved
US-China trade relationship, instead it is because of the efforts
to reduce the inflationary pressure and economic pains to
American consumers. The latest estimation from the PIIE
showed that trade liberalization in the US can deliver a one
time CPI reduction as high as 2.8%.
▪ Hong Kong: The risk of brain drain is growing, as ▪ Survey by the European Chamber of Commerce revealed that
businesses and expats became increasingly nearly half of the European companies in Hong Kong have
impatient with the city’s lack of exit plan for plans to fully or partially relocate operations and staffs out of
antivirus measures. While the government has Hong Kong. The interviewed companies cited “unusually high
announced to ease some restrictions, including staff turnover” and difficulties in hiring overseas talents due to
lifting the flight bans to and cutting short the tight border controls. The result echoed a similar survey done
mandatory quarantine period, it seems far from by the American Chamber of Commerce earlier in January.
enough to change their relocation plans. Evidently, the strict antivirus measures have posed threat to
Hong Kong’s role as regional business hub.
▪ In fact, Hong Kong recorded net outflow of over 80,000 people
in the first two months of 2022. In the first two weeks of
March alone, we saw a net outflow of around 43,000 people
from Hong Kong according to passenger traffic statistics.
Added to shrinking talent pool, the aging population would
also hurt the economic vibrancy. According to the
government’s statistics, Hong Kong’s labour force fell by a
total of 3.7% since the start of pandemic. These added to the
downside risks to the economic recovery this year.
▪ Hong Kong: We saw some stabilisation in stock ▪ While there has been speculation that a final agreement
market after the epic swing in the previous week, between the US and Chinese authorities may be reached in
buoyed by the buyback announcements of big the near term, the Public Company Accounting Oversight
tech names such as Alibaba and Xiaomi. Board claimed that deal that would keep Chinese companies
Nonetheless, the stablisation may be short lived from being delisted from US exchange is “premature”.
given lingering US delisting risks, covid resurgence Regulators from both sides agreed to continue to meet,
in Mainland, as well as earning season swings. though it is unclear the later will ultimately permit US
Hang Seng Index closed the market with little inspectors to fully review the audit papers. The lingering
change, while Hang Seng Tech Index fell by 2.35% regulatory uncertainties will likely weigh on market sentiment.
week-on-week. ▪ Added to that, dimer growth prospect of Chinese tech giant is
also likely to add pressure to the equity market. The Chinese
technology firms, such as Alibaba and Tencent had reported
slower growth in the past financial year as a result of
regulatory crackdown.
Key Economic News
Treasury Research & Strategy 2OCBC TREASURY RESEARCH
Greater China – Week in Review
28 March 2022
Facts OCBC Opinions
▪ China’s balance of payment returned to twin ▪ China’s basic balance as % of GDP improved further to 2.95%
surplus again in 2021. in 2021 from 2.33% in 2020.
▪ Current account surplus as % of GDP increased to ▪ The expansion of current account surplus was mainly due to
1.8% from 1.7% in 2020 while financial account widening goods trade surplus and narrowing service trade
surplus as % of GDP improved to 0.2% from a deficit deficit. Travel related service deficit fell by 22% yoy in 2021 to
of 0.4% in 2020. US$94.4 billion as the ongoing Covid-19 continued to restrict
Chinese people’s overseas trip.
▪ On direct investment, China’s overseas direct investment
slowed down significantly, falling by 17% yoy in 2021 due to
Covid-19. However, foreign direct investment in China
remained strong up by 32% yoy. China’s first in first out from
the Covid-19 last year made China more appealing to foreign
investors.
▪ The income from service trade in China reached a record high
level of US$338.4 billon 2021 as income from transportation
surged. In addition, the exports of telecommunication and
computer information also increased by 30% yoy.
▪ Foreign investors earned US$417.4 billion return from China in
2021, highest in record. The investment return improved to
6% from 5.7% in 2020. This is much higher than average 2.8%
Chinese investors earned from their investments overseas.
The deep integration between China and the global economy
showed that China remains an important market with
appealing investment returns.
▪ China’s industrial profit reaccelerated to 5% yoy in ▪ 22 sectors out of 41 reported positive profit growth. Upper
the first two months of 2022 from 4.2% yoy in stream sectors continued to benefit from the higher
December. commodity prices. Profit in mining sectors jumped by 132%
yoy. In addition, profit in non-ferrous metals and chemicals
also increased by 63.8% yoy and 27.3% yoy respectively.
▪ Profitability in consumer goods also improved probably due to
holiday demand. For example, industrial profit in wine and
beverage sector rose by 32.5%.
▪ The gap between upper stream and down stream widened as
down stream sectors are facing the pressure from the rising
costs.
▪ China’s banking and insurance regulator reported ▪ Banks will continue to provide green finance support to
that green credit outstanding of 21 major banks support decarbonization.
reached CNY15.1 trillion by end of 2021, accounting
for 10.6% of their loan book.
▪ Hong Kong’s headline composite CPI rose by a ▪ Analyze by component, enlarged year-on-year increases for
faster 1.6% yoy in February, largely due to the clothing and footwear (+8.0% yoy), transport (+7.0%) and food
accelerated increase in food prices as supply of (+4.5% yoy) pushed up the inflation in February. Going
fresh vegetables from the Mainland was forward, we expect the inflation to stay moderate despite
temporarily affected by the epidemic-induced surging energy and commodity prices, as the local epidemic
transport disruptions. Meanwhile, the faster situation dented domestic demand. Added to that, given that
increase in prices of clothing and transport housing accounted for 40% of total weight in CPI calculation,
continued to push up living costs, while declining the sustained decline in rent should limit the upside of
rental cost capped the upside of inflation. Going inflation in 2022.
forward, we expect the inflation to remain
moderate, despite surging energy and commodity
prices.
Treasury Research & Strategy 3OCBC TREASURY RESEARCH
Greater China – Week in Review
28 March 2022
RMB
Facts OCBC Opinions
▪ The USDCNY was traded between 6.35 and 6.40 last ▪ Pressure for RMB to weaken increased last week due to
week. concerns about Covid-19 and risk of secondary sanctions on
Chinese companies dealing with Russia. Nevertheless, the still
flushed dollar liquidity in the onshore market is likely to cap
the upside for the USDCNY in the near term.
Treasury Research & Strategy 4OCBC TREASURY RESEARCH Greater China – Week in Review 28 March 2022 Treasury Research & Strategy OCBC Greater China Research Tommy Xie Herbert Wong xied@ocbc.com herberthtwong@ocbcwh.com This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinio n or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons actin g on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC Bank, its related companies, their respective directors and/or employees (collectively “Related Persons”) may or might have in the future in terests in the in vestment products or the issuers mentioned herein. Such interests include effecting transactions in such investment products, and providing broking, in vestment banking and other financial services to such issuers. OCBC Bank and its Related Persons may also be related to, and receive fees from, providers of such investment products. This report is intended for your sole use and information. By accepting this report, you agree that you shall not share, communicate, distribute, deliver a copy of or otherwise disclose in any way all or any part of this report or any information contained herein (such report, part thereof and information, “Relevant Materials”) to any person or entity (includin g, without limitation, any overseas office, affiliate, parent entity, subsidiary entity or related entity) (any such person or entity, a “Relevant Entity”) in breach of any law, rule, regulation, guidance or similar. In particular, you agree not to share, communicate, distribute, deliver or otherwise disclose any Rele vant Materials to any Relevant Entity that is subje ct to the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID”) and the EU’s Markets in Financial Instruments Regulation (600/2014) (“MiFIR”) (together referred to as “MiFID II”), or any part thereof, as implemented in any jurisdiction. No member of the OCBC Group shall be liable or responsible for the compliance by you or any Relevant Entity with any law, rule, regulation, guidance or similar (including, without limitation, MiFID II, as implemented in any jurisdiction). Co.Reg.no.:193200032W Treasury Research & Strategy 5
You can also read
