30 July 2024
Enodo QuickTake
China Talks up Consumer Stimulus but Fails To Do the Right Thing
- The Politburo pledged to take "countercyclical" measures to boost growth in H2 and focus on boosting consumer spending. This does not change our expectation that Chinese equities will underperform for the remainder of the year.
- Both liquidity and money supply growth augur badly for A-shares. At the Plenum the Party-state chose not to provide a short-term stimulus to the equity market but focus on long-term reforms, thus failing to unleash pent-up liquidity. Meanwhile, broad money growth has slowed down to worrying levels.
Broad money growth
Yoy
Source: Enodo Economics, CEIC
- The growth in M2 and Enodo's wider measure M3 is likely to continue to trend down as both consumer and corporate demand for credit remain weak. Regulator efforts to weed out inappropriate use of credit funds for financial speculation will also weigh on overall credit growth.
Bank loans
Yoy
Source: Enodo Economics, CEIC
- On a half-year basis, M&A deals involving Chinese companies have been declining since the first half of 2022, down by 45% in H1 this year according to data compiled by Nikkei. Yet another piece of evidence underscoring weak credit demand.
- Profit growth has perked up a bit in Q2, but the cyclical upswing is way short of past experience. We do not anticipate a meaningful upturn in earnings growth, thus keeping foreign portfolio investor appetite for Chinese equities subdued at this stage. Our conversations with domestic investors reveal continued gloom.
Industrial pre-tax profit
Qoq ar, sa & yoy
Source: Enodo Economics, CEIC
- We remain relatively bullish on China’s dividend payers. Beijing is committed to professionalizing its equity market, aiming to make it a more appealing long-term investment option for households. Incentivising firms to distribute profits is a key focus of reforms, and the government continues to incentivise corporates, both SoEs and large private firms to up their dividends.
CSI 300 vs SSE dividend value index
Daily
Source: Enodo Economics, Wind
- We do not expect the authorities' efforts to boost consumer spending to succeed and remain negative on consumer discretionary. As we discussed, Beijing is missing the mark and perpetuating household financial repression by lowering interest rates. Some of Beijing's redistributive efforts could support spending by lower-income households so, consumer staples could fare better.