The market rebound will not be a flash in the pan!
In March, the Greater China stock market continued its post-New Year rally. The CSI 300 and Hang Seng both edged up 0.6 per cent; The wave of artificial intelligence pushed the Taiwan market to continue to rise, up 7.2% in New Taiwan dollar terms, and hit a new high; The MSCI index of Shanghai, Shenzhen and Hong Kong investable markets is up 1.2 per cent this month.
The "Two sessions" were held smoothly. As expected, the GDP growth target for this year is set at 5%; CPI was 3% in the past few years; The national deficit-to-GDP ratio was 3%; The surveyed urban unemployment rate is 5.5%. After the "two sessions", the Ministry of Commerce proposed a new round of equipment renewal, automobiles, home appliances to replace the old specific policies. Equipment update, mainly through subsidies to promote the replacement of equipment localization, focusing on industrial mother-machine, CNC machine tools, high-end medical equipment and other fields; The replacement of old cars and home appliances may have a certain stimulating effect on durable consumer goods. At the same time, the central government decided to issue 1 trillion yuan of ultra-long-term special bonds, mainly to hedge the sharp contraction of local government land finance (land revenue + implicit debt financing).
The macro data point to a recovery. In January-February, industrial production grew 7% year on year, the fastest in two years and exceeding expectations. Fixed-asset investment growth rose to 4.2%; Retail sales rose 5.5 per cent; Total electricity consumption increased by 11%; Merchandise exports rose 7.1 percent. In February, CPI rose to 0.7% year-on-year, partly boosted by the Spring Festival effect; PPI fell to -2.7 percent year-on-year from -2.5 percent in January, and the wider decline in PPI may have been affected by the holiday production slack season and lower international oil prices. In March, the official manufacturing PMI was 50.8, higher than the critical point, indicating that the manufacturing industry is recovering. The non-manufacturing purchasing managers' index was 53, up 1.6 percentage points from the previous month, indicating that the non-manufacturing economy continued to recover. However, the housing sector remains a major drag on the economy, with investment down 9 percent in January-February from a year earlier and residential sales down 33 percent.
The central government continued to increase fiscal spending. Central general public spending surged 14 percent in January-February, while local general public spending rose only 5.8 percent, down from 6.8 percent in the same period last year. In our view, the government is gradually shifting the responsibility for supporting economic growth from local governments to the central government, and maintaining a certain level of investment while resolving local debt risks, in order to mitigate the loss of land sales, an important source of revenue due to the real estate crisis, and avoid the economic slowdown that will drag down tax revenue and put local governments in trouble.
Regulators' desire to protect the stock market is clear. At the end of the month, the Shanghai Stock Exchange announced that the agricultural chemical giant Syngenta Group submitted an application for withdrawal of IPO documents, and will terminate the review of Syngenta's initial application for listing on the main board. Syngenta's suspension of the A-share IPO process surprised the market. According to the information in the previous prospectus, Syngenta's listing plans to raise about $10 billion, and its valuation can reach $60 billion after listing, which is expected to become the largest IPO in the A-share market in 2024. At A time when the stock market has just stabilised, the suspension of Syngenta's A-share IPO is a kinder move.
Taiwan's exports in February fell 10.2% year on year, with downstream electronic products weaker than middle and upstream components. Exports are expected to fall another 10 per cent in March. Taiwan raised its benchmark interest rate by 12.5 basis points to 2% on concerns that a rise in electricity prices in April could drive structural changes in inflation. It remains to be seen whether Taiwan's interest rate hike will have an impact on exports.
We continue to believe that this market rally will not be short-lived. With the landing of a series of policies and the strengthening of economic recovery signals, investors' confidence will be further restored.
