After 2 months of underperformance, both Hong Kong and China markets mounted a huge rebound in November, expectations on additional policy support and COVID policy relaxations drove the rapid improvement in investment sentiment. Over the month of November, CSI 300 was 9.81% higher (13.11% in US$ terms), the Hang Seng Index even surged a whopping 26.62% (27.31% in US$ terms).

Economic data this month continued to disappoint, as all PMIs and sector indicators showed continued weak trends. The economic slowdown in China due to confidence issues, which could be attributed to 2 main causes, the COVID restrictions due to the ‘Zero COVID’ doctrine, and the property crisis after active deleveraging. The former has dampened both investment and consumption due to the strictness of the rules, while the latter has large direct and indirect impacts on the economy itself, and further hits disposable income due to the reverse wealth effect.

To deal with the issues, the Chinese government has finally relaxed COVID restrictions. Although the relaxation is relatively limited in scale, it was viewed as a step forward to reopening. Optimism over the COVID policy outlook lifted economic expectations, which could possibly kick-start consumption recovery. Regarding the property crisis, a 16 point plan was released, providing more financing support to the sector, potentially limiting the contagion risk in the economy. With the government starting to address the core issues of the economy, the medium term outlook for Chinese equities would likely start to turn more positive, we hold a relatively neutral view after the recent surge, and see more upside available if the market corrects.