The Chinese equity market performed relatively well in the month. Although economic fundamentals remain under water, the low valuations limited downside, and expectations of more supportive policies from the government lifted market sentiment. Over the month of May, the CSI 300 was 1.87% higher (0.91% in US$ terms), while the Hang Seng Index gained 1.54% (1.54% in US$ terms)

The earlier focus of pandemic concerns has ebbed out somewhat, after months of restrictive measures, new cases in the country have peaked and is now down to lower levels. Henceforth, the government is lifting movement restrictions, in hopes to restore economic growth momentum, which was badly hit throughout the recent pandemic wave. Although economic indicators were weak across the board, the latest PMIs have shown some rebound despite staying in the contraction zone. The recovery in sentiment and confidence should likely continue given the improving pandemic situation.

To further support the economy, the Chinese politburo have announced 33 new policies to stimulate the economy, ranging from food and energy security, to monetary & fiscal loosening, covering a wide range of sectors in the Chinese economy. The announcement has been positive for the market sentiment, as these kinds of tangible policy was the long-awaited support to the market. Given the lower equity valuations at the moment, although short term volatility would likely remain due to external market factors, we remain our positive skew on the Chinese equity outlook over the medium term.