Both Hong Kong and China equities continued to pare earlier losses as markets remained optimistic over the Chinese economic outlook, after the government turned around on its industrial and COVID policy. In the last month of 2022, the CSI 300 Index edged 0.48% higher (3.31% in US$ terms), whereas the Hang Seng Index gained 6.37% (6.44% in US$ terms).

Chinese economic data remained weak, PMIs remained in contraction, and the NBS official non-manufacturing PMI in particular hit the lowest level since Feb 2020. Sectorial indicators including retail sales and industrial profits continued the deterioration, reflecting the impact of the previous COVID policy. Both business and consumer confidence were impaired by the reduced economic activity, and the implosion of the property market had far reaching implications for the longer term growth. Henceforth, with the pivot in the policy direction, the outlook for China market has materially improved, as both big risk overhang were somewhat removed. 

Looking forward for the year of 2023, uncertainties remain on the global stage, given the near certain economic slowdown in external markets, which is expected to impact exports. The swift policy decisions would also continue to serve as a double-edged sword, as future political uncertainty could still spell doom with little warning. Therefore, although the Chinese economy is expected to buck the trend and outperform its global peers, we would advise caution when allocating to the market, increasing exposure when the markets experience correction would offer more safety margin from excess downside risk.