Market sentiment was muted as policy guidance missed expectations. Economic fundamentals remained weaker, the Chinese equity market extended losses and saw larger corrections in October. Over the month, the CSI 300 Index fell 7.78% (10.17% in US$ terms), while the Hang Seng Index had one of the worse months in history, crashing 14.72% over the month (14.72% in US$ terms).

The economy showed further weakness, with all major PMIs falling into contraction zone again. Other sector indicators showed a similar trend, industrial production and retail sales alike remained below the long term average levels, while the property crisis remains unresolved. The key issue at hand is the lack of confidence in both the consumer and business ends, no amount of monetary easing and policy posturing can reverse the situation. We expect the crisis to exert significant pressure onto the economy, and there will be no significant recovery in the short term.

Apart from the property crisis, the COVID situation in China dampens confidence, restrictions have resulted in a higher propensity to save. Furthermore, the 20th National Congress left markets with little to be excited about. There has been more emphasis on ‘security’ and less on ‘economy’ and ‘reforms’,  President Xi has also reiterated the commitment to ‘Zero COVID’, the economy might take a backseat in the coming years, and expect limited change in the policy direction. Henceforth, we expect the existing economic issues to stay. Although current valuation levels remain at historic lows, it only offers some downside protection, but valuation recovery would still depend on tangible policy pivots from China. We would remain wait-and-see on China in the shorter term.