9 October 2024
Cheuk Wan Fan
Chief Investment Officer, Asia, HSBC Global Private Banking and Wealth
The widely anticipated press conference hosted by China’s National Development and Reform Commission (NDRC) on 8 October turned out to be disappointing as no new stimulus was announced.
Since the announcement of the comprehensive monetary, property and capital market support package on 24 September, the markets have been building up expectations of a “whatever it takes” approach of fiscal spending plan, with market projections of the stimulus package size ranging from RMB2trn to RMB10trn.
The underwhelming policy communication triggered massive profit-taking and a sharp sell-off of the Hang Seng Index (HSI) by 9.4% to close at 20,927, with record daily trading volume of HKD620bn (USD80bn). Meanwhile, China’s A-share benchmark, CSI 300, recorded a smaller-than-expected reopening rally of 5.9% (vs +10% limit up expectations). That said, the A-share markets still witnessed record daily turnover of RMB3.43trn (USD486bn), as onshore investors played catch-up with the massive gains of China’s offshore equities during the Golden Week holidays.
We view the sharp selloff of the HSI as a short-term technical correction after the index staged a stellar rally of 26.6% within nine trading days since the announcement of the China stimulus. A combination of short-term technical factors has exaggerated the magnitude of the market drawdown, including heavy profit-taking pressure, A-H pair trades, investor repositioning and tactical rotation from China’s offshore equities into domestic A-shares to capture more revaluation upside after the Golden Week holidays.
It is noteworthy that the lack of stimulus announcement from the NDRC should not be a surprise to the markets in the first place, given that the commission’s mandate is to formulate economic reform strategies, set macroeconomic targets, and coordinate macro and structural reform policies. It should be the Ministry of Finance, not the NDRC, to announce financing plans for the fiscal stimulus package.
We believe further fiscal stimulus will likely be on the way to supplement monetary easing to revive domestic demand and shore up growth. However, the exact timeline of the policy announcement and the scale of stimulus package remain uncertain. We think the ultimate size of fiscal stimulus will likely hinge on the central leadership’s sense of urgency to offer additional policy support.
The NDRC conveyed a constructive message that the Chinese economy is “stable” and showing “positive progress” in meeting the 2024 economic growth target of around 5%. The NDRC’s policy tone seems to reflect reduced urgency for a fiscal stimulus bonanza. Existing fiscal initiatives highlighted by the NDRC:
1) Special Local Government Bonds (SLGBs) – The NDRC called for accelerated usage of all the 2024 issuance quota for new SLGBs by end-October. Local governments are estimated to have about RMB290bn remaining quota left for construction projects in 2024, suggesting more room for additional special bonds to be issued this year.
2) Ultra-long Special China Government Bonds (SCGBs) – The NDRC provided no hint for lifting the quota for ultra-long SCGBs in 2024. Instead, the NDRC is preparing the project list for 2025.
3) Front-loading 2025 project list – The NDRC planned to front-load the 2025 construction project list of RMB200bn (0.2% of GDP) to 2024, with RMB100bn of central fiscal spending to be issued by end-October.
The NDRC reiterated the policy focus on increasing countercyclical support and boosting consumption demand, and emphasised the importance of stabilising the property sector and introducing powerful and effective measures to boost the capital markets, but it didn’t provide specific policy details.
We remain neutral on mainland Chinese and Hong Kong equities as we look for more evidence of a meaningful improvement in the fundamental outlook of the Chinese economy and corporate earnings. We think the support measures announced so far should be effective in avoiding further deterioration in the deleveraging and debt deflation spiral. But the markets require more sustained improvement in the growth outlook beyond 2024.
We view the sharp spike in market volatility as a timely wake-up call to focus on fundamental quality. Looking ahead, we believe the extension of the China rally will hinge on the fiscal policy, which remains the key driver for China’s structural growth outlook.
Source: Bloomberg, HSBC Global Private Banking and Wealth as at 9 October 2024. Past performance is not an indicator of future performance.
As it would take time for the stimulus measures to filter through the economy and drive fundamental improvement, we favour undervalued quality Chinese and Hong Kong industry leaders with strong earnings and high potential of improving shareholder returns by increasing dividend payment and share buybacks. We like quality SOEs paying high dividends, including select Chinese banks, telecom and energy stocks, and favour blue-chip internet leaders with resilient earnings outlook and significant valuation discounts to their US peers. In Hong Kong, we prefer undervalued high dividend stocks in the insurance, telecom and utilities sectors, which are expected to perform well in the global rate-cutting cycle. The MSCI China and HSI are trading at 12-month forward P/E of 11.5x and 9.9x, respectively, which remain below their 5-year averages.
We remain cautious on Chinese property high-yield bonds and stocks of highly geared privately-owned Chinese developers. But we selectively position in quality Chinese SOE developers and Hong Kong property developers with strong financial strength to pay high dividends.
We expect the low-for-longer rate environment will persist and Chinese IG bonds will remain well supported by central bank policy easing. We stay neutral on Chinese local currency bonds and hard currency bonds.
This document or video is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document or video is distributed and/or made available, HSBC Bank (China) Company Limited, HSBC Bank (Singapore) Limited, HSBC Bank Middle East Limited (UAE), HSBC UK Bank Plc, HSBC Bank Malaysia Berhad (198401015221 (127776-V))/HSBC Amanah Malaysia Berhad (20080100642 1 (807705-X)), HSBC Bank (Taiwan) Limited, HSBC Bank plc, Jersey Branch, HSBC Bank plc, Guernsey Branch, HSBC Bank plc in the Isle of Man, HSBC Continental Europe, Greece, The Hongkong and Shanghai Banking Corporation Limited, India (HSBC India), HSBC Bank (Vietnam) Limited, PT Bank HSBC Indonesia (HBID), HSBC Bank (Uruguay) S.A. (HSBC Uruguay is authorised and oversought by Banco Central del Uruguay), HBAP Sri Lanka Branch, The Hongkong and Shanghai Banking Corporation Limited – Philippine Branch, HSBC Investment and Insurance Brokerage, Philippines Inc, and HSBC FinTech Services (Shanghai) Company Limited and HSBC Mexico, S.A. Multiple Banking Institution HSBC Financial Group (collectively, the “Distributors”) to their respective clients. This document or video is for general circulation and information purposes only.
The contents of this document or video may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. This document or video must not be distributed in any jurisdiction where its distribution is unlawful. All non-authorised reproduction or use of this document or video will be the responsibility of the user and may lead to legal proceedings. The material contained in this document or video is for general information purposes only and does not constitute investment research or advice or a recommendation to buy or sell investments. Some of the statements contained in this document or video may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. HBAP and the Distributors do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document or video has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed are based on the HSBC Global Investment Committee at the time of preparation and are subject to change at any time. These views may not necessarily indicate HSBC Asset Management‘s current portfolios’ composition. Individual portfolios managed by HSBC Asset Management primarily reflect individual clients’ objectives, risk preferences, time horizon, and market liquidity.
The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document or video is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Investments are subject to market risks, read all investment related documents carefully.
This document or video provides a high-level overview of the recent economic environment and has been prepared for information purposes only. The views presented are those of HBAP and are based on HBAP’s global views and may not necessarily align with the Distributors’ local views. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. It is not intended to provide and should not be relied on for accounting, legal or tax advice. Before you make any investment decision, you may wish to consult an independent financial adviser. In the event that you choose not to seek advice from a financial adviser, you should carefully consider whether the investment product is suitable for you. You are advised to obtain appropriate professional advice where necessary.
The accuracy and/or completeness of any third-party information obtained from sources which we believe to be reliable might have not been independently verified, hence Customer must seek from several sources prior to making investment decision.
The following statement is only applicable to HSBC Mexico, S.A. Multiple Banking Institution HSBC Financial Group with regard to how the publication is distributed to its customers: This publication is distributed by Wealth Insights of HSBC México, and its objective is for informational purposes only and should not be interpreted as an offer or invitation to buy or sell any security related to financial instruments, investments or other financial product. This communication is not intended to contain an exhaustive description of the considerations that may be important in making a decision to make any change and/or modification to any product, and what is contained or reflected in this report does not constitute, and is not intended to constitute, nor should it be construed as advice, investment advice or a recommendation, offer or solicitation to buy or sell any service, product, security, merchandise, currency or any other asset.
Receiving parties should not consider this document as a substitute for their own judgment. The past performance of the securities or financial instruments mentioned herein is not necessarily indicative of future results. All information, as well as prices indicated, are subject to change without prior notice; Wealth Insights of HSBC Mexico is not obliged to update or keep it current or to give any notification in the event that the information presented here undergoes any update or change. The securities and investment products described herein may not be suitable for sale in all jurisdictions or may not be suitable for some categories of investors.
The information contained in this communication is derived from a variety of sources deemed reliable; however, its accuracy or completeness cannot be guaranteed. HSBC México will not be responsible for any loss or damage of any kind that may arise from transmission errors, inaccuracies, omissions, changes in market factors or conditions, or any other circumstance beyond the control of HSBC. Different HSBC legal entities may carry out distribution of Wealth Insights internationally in accordance with local regulatory requirements.
Important Information about the Hongkong and Shanghai Banking Corporation Limited, India (“HSBC India”)
HSBC India is a branch of The Hongkong and Shanghai Banking Corporation Limited. HSBC India is a distributor of mutual funds and referrer of investment products from third party entities registered and regulated in India. HSBC India does not distribute investment products to those persons who are either the citizens or residents of United States of America (USA), Canada or New Zealand or any other jurisdiction where such distribution would be contrary to law or regulation.
The following statement is only applicable to HSBC Bank (Taiwan) Limited with regard to how the publication is distributed to its customers: HSBC Bank (Taiwan) Limited (“the Bank”) shall fulfill the fiduciary duty act as a reasonable person once in exercising offering/conducting ordinary care in offering trust services/ business. However, the Bank disclaims any guarantee on the management or operation performance of the trust business.
The following statement is only applicable to PT Bank HSBC Indonesia (“HBID”): PT Bank HSBC Indonesia (“HBID”) is licensed and supervised by Indonesia Financial Services Authority (“OJK”). Customer must understand that historical performance does not guarantee future performance. Investment product that are offered in HBID is third party products, HBID is a selling agent for third party product such as Mutual Fund and Bonds. HBID and HSBC Group (HSBC Holdings Plc and its subsidiaries and associates company or any of its branches) does not guarantee the underlying investment, principal or return on customer investment. Investment in Mutual Funds and Bonds is not covered by the deposit insurance program of the Indonesian Deposit Insurance Corporation (LPS).
Important information on ESG and sustainable investing
Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. For more information visit www.hsbc.com/sustainability.
In broad terms “ESG and sustainable investing” products include investment approaches or instruments which consider environmental, social, governance and/or other sustainability factors to varying degrees. Certain instruments we classify as sustainable may be in the process of changing to deliver sustainability outcomes. There is no guarantee that ESG and Sustainable investing products will produce returns similar to those which don’t consider these factors. ESG and Sustainable investing products may diverge from traditional market benchmarks. In addition, there is no standard definition of, or measurement criteria for, ESG and Sustainable investing or the impact of ESG and Sustainable investing products. ESG and Sustainable investing and related impact measurement criteria are (a) highly subjective and (b) may vary significantly across and within sectors.
HSBC may rely on measurement criteria devised and reported by third party providers or issuers. HSBC does not always conduct its own specific due diligence in relation to measurement criteria. There is no guarantee: (a) that the nature of the ESG / sustainability impact or measurement criteria of an investment will be aligned with any particular investor’s sustainability goals; or (b) that the stated level or target level of ESG / sustainability impact will be achieved. ESG and Sustainable investing is an evolving area and new regulations are being developed which will affect how investments can be categorised or labelled. An investment which is considered to fulfil sustainable criteria today may not meet those criteria at some point in the future.
THE CONTENTS OF THIS DOCUMENT OR VIDEO HAVE NOT BEEN REVIEWED BY ANY REGULATORY AUTHORITY IN HONG KONG OR ANY OTHER JURISDICTION. YOU ARE ADVISED TO EXERCISE CAUTION IN RELATION TO THE INVESTMENT AND THIS DOCUMENT OR VIDEO. IF YOU ARE IN DOUBT ABOUT ANY OF THE CONTENTS OF THIS DOCUMENT OR VIDEO, YOU SHOULD OBTAIN INDEPENDENT PROFESSIONAL ADVICE.
© Copyright 2024. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED.
No part of this document or video may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.
