Chinese economy remain weaker, certain factors continue to weigh down on the market, and uncertainties in both the economy and policies dragged on equity relative performance. The CSI 300 Index only managed a 0.87% gain (1.49% in US$ terms) over the month of October, the Shanghai Composite lost 0.58% (gained 0.02% in US$ terms); the Hang Seng Index on the other hand gained 3.26% (3.35% in US$ terms).
Key leading indicators including PMIs and others reflected the continued economy slowdown, which was a result of a combination of numerous factors. The global energy crisis was deeply felt in the country, as power curbs still remain in place due to the elevated fuel costs, which in turn disrupts the production in the whole supply chain. To make matters worse, the rout in the real estate market continued, the sector stayed under pressure as policy remain tight on the market. Overall, the Chinese economy remained under stress.
Over the month, more developers defaulted on their debt obligations hitting market sentiment, as suggested by the surge in yield of the China high yield bond index. Due to the lack of clarity in the market outlook, buyer interest has also dwindled, YoY sales figures saw large drops. On the latest politburo meeting, officials have released signals that liquidity conditions could improve. While this doesn’t rule out future defaults, it could possibly prevent the market from collapsing. Although policy direction is seemingly loosening, we still see uncertainties in the Chinese market, hence our neutral stance on the market in the short term.
