China equites were one of the few markets that had logged in positive returns for the month. Market sentiment supported equities, and fundamentals have started to show signs of a rebound.
The CSI 300 index gained a whopping 9.62% (9.17% in US$ terms) over the month of June, while the Hang Seng Index also posted a smaller 2.08% gain (2.07% in US$ terms).
Riding off from the improved sentiment after the supportive policies came out in late May, Chinese equities had a strong rally over the month as valuations recovered. With COVID under control, economic activity have started to pick up pace, both manufacturing and services PMIs have also further rebounded to the expansion zone, reflecting the improvement in business sentiment. However, other indicators have still yet to show a clear bottoming out, which would warrant further monitoring before we can determine there is a complete recovery.
Housing market data also showed positive signs, as home sales in first and second tier cities picked up MoM, which is a good sign for the physical economy outlook. Moreover, given the limited inflation, China has more tools at hand to deal with the uncertainty arising from recessionary risks in external markets, as there is more room for monetary and fiscal loosening. As the valuation levels are relatively lower, we see China is one of the only few markets where its upside potential outweighs the downside risk. Henceforth, we are relatively optimistic on the market in the short to medium term.
