Reversing the trend in the previous month, China equities have moved in opposite directions to the rest of the world. Market sentiment worsened as worries over economic fundamentals re-emerged. Over the month of July, the CSI 300 index lost 7.02% (7.64% in US$ terms), whereas the Hang Seng Index lost 7.79% (7.82% in US$ terms). COVID cases seemingly rebounded, casting a shadow over the economic recovery with possible renewed restrictions, the mixed bag of data also reflects the deterioration in sentiment. Although the overall data have seemingly bottomed out in April, Chinese PMIs of both manufacturing and services sectors have deteriorated in July, the official NBS manufacturing PMI in particular have returned to contractionary zone, other sector indicators such as retail sales figures have also remained on the weak end. Apart from the softer fundamentals, the situation in the property sector is another big issue in China. After a series of credit events, property sales figures have fallen significantly. Even though policy support including mortgage rate cuts were rolled out, effectiveness were limited. The situation is further worsened by the rise of mortgage payment boycotts, further hitting confidence and pressuring developers. Considering that the property has high levels of direct and indirect impacts on the GDP, the unresolved issue remains a threat to the economy. That said, given the low valuation levels, as well as the supportive monetary and fiscal policies, further downside is relatively limited, we’ll take a wait-and-see approach on China in the short to medium term.