The US interest rate hike has peaked, and the market turning point is approaching
In November, when the market expected the US interest rate hike to peak, global stocks and bonds rallied strongly, and the yuan and Taiwan dollar appreciated 2.7% and 3.4% respectively. But markets in greater China continued to disappoint: the CSI 300 index and Hong Kong's Hang Seng Index fell 2.1% and 0.2%, respectively; Only Taiwan's stock market rose 9.0%, driven by the concept of AI and smartphones; The MSCI index of investable markets in Shanghai, Shenzhen and Hong Kong was almost flat this month.
Economic activity in China was mixed in October. Retail sales rose 7.6 percent year on year, and industrial output rose 4.6 percent, both better than expected. However, the consumer price index (CPI) fell 0.2 per cent year-on-year, mainly due to a 30.1 per cent fall in pork prices. The producer price index fell 2.6 per cent from a year earlier. Exports fell for the sixth straight month, falling 6.4 per cent from a year earlier. Industrial profits rose 2.7 per cent from a year earlier, a marked slowdown from September's 11.9 per cent rise. China's manufacturing purchasing managers' index fell to 49.4 in November, contracting for a second straight month. The non-manufacturing activity index unexpectedly fell to 50.2. The government is expected to further strengthen its support for the economic recovery.
The country has adopted a series of easing policies on real estate in the past year, but the effects have not yet been shown. Policymakers plan to take unconventional steps to support urban village renovation projects and have announced a "white list" of 50 developers who will receive financial support. In order to understand the current situation of real estate developers, we visited a well-known real estate developer. It can be seen that the company is currently facing the challenge of restructuring offshore debt and rolling over domestic debt. The consigned building is the focus of its business and is expected to be completed by 2025. The company did not purchase new land this year, and it is expected that its real estate sales will decline in FY23 and further decline in FY24. The deleveraging process sent its business into a downward spiral. Management plans to shift to an asset-light business model after the crisis, providing management services for real estate developments. So it will take some time for the housing market to recover.
The fourth batch of medical consumables is mainly for intraocular lens and sports medicine consumables. The average price of selected products in this collection is about 70%, of which the average price of intraocular lens consumables is 60%, and the average price of sports medicine consumables is 74%. The decline was better than expected. Acute respiratory diseases in north China have been on the rise recently, which is related to the superposition of multiple respiratory pathogens. The infection rate of this respiratory disease is about 10 percent, much lower than that of the novel coronavirus pneumonia. While domestic investors are mostly calm, foreign investors are a little worried about whether another coronavirus is coming.
Following their meeting in San Francisco, the two sides agreed to resume high-level military exchanges, combat fentanyl and start a dialogue on artificial intelligence. China and the United States issued the "Sunnylands" statement, focusing on cooperation in energy transition, methane, circular economy and resource efficiency, low carbon sustainability and other areas. We expect that the 28th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28) will bring more opportunities for China-Us cooperation on climate.
In Taiwan's general election in January, the KMT's campaign to vote with former surgeons who entered politics only a decade ago failed, helping the ruling DPP candidate Lai Ching-de to the top. We believe that even if Lai is successfully elected, he will continue the DPP's current strategy and carefully handle cross-strait relations.
With the US inflation index falling in October, the market's expectations of further interest rate hikes by the Federal Reserve have been reduced, and the market has reached an inflection point. We are confident that investors will return to the market as more positive and sustained signs of economic recovery emerge.
