FX-guidance Blog Business CBR stimulus measures do not yet have a positive impact on the Chinese economy

CBR stimulus measures do not yet have a positive impact on the Chinese economy

The Hang Seng Index in Hong Kong fell by 7.7% in the week from April 19 to April 25, losing almost all of the growth that began on March 16, when the Chinese financial authorities announced the imminent launch of stimulus measures. Asian benchmarks continued to move in line with global trends set by the dynamics of US Treasury bonds – their yield increased by 5 bp over the week, to 2.92%. Rising US bond yields pushed up bond yields around the world, including in Asia, and put additional pressure on stock indices. The Chinese market is also increasingly affected by strict quarantine in certain areas of China and the rapid decline in business activity. The number of cases of coronavirus detected per week is above 20 thousand. Deaths from coronavirus are also growing.

Restrictive measures in Hong Kong, on the contrary, will be partially relaxed on May 1 – the city will open to visitors.

Chinese President Xi Jinping announced that the quarantine in Shanghai will last until the infection rate drops to an acceptable level. The priority of the authorities is Chinese citizens, and protecting their health requires strict quarantine.

Also on Sunday, April 24, the authorities of one of the districts of Beijing ordered to begin mass testing of residents for coronavirus, which caused a new wave of sell-offs in the stock market due to concerns about quarantine.

The crisis in the real estate sector continues, market prices are not growing, the situation with debt payments by the largest developers is not improving. Bond prices of overleveraged companies continued to fall throughout the past week.

The Chinese authorities confirmed their desire to build long-term relations with Russia – the statement had an additional negative impact on the quotes of Chinese companies.

News of the week:

1) Food prices continued to rise in Asia due to a poor harvest in India, the coronavirus outbreak in Shanghai.

2) The outbreak of the coronavirus in Shanghai led to a decrease in demand for oil in China by the equivalent of 1.2 million b/d, the most since the peak of the coronavirus in 2020. Oil consumption has already decreased by 9% in the first quarter this year, due to which a pent-up demand for oil has formed, which can create serious prerequisites for a jump in both oil prices (by 20-30%) in the fall and inflation, and cause retaliatory measures by the US Federal Reserve.

3) China is able to adapt to changes in the policy of the US Federal Reserve, and the authorities expect that the uncertainty abroad will not have a noticeable impact on the yuan, Wang Chunying, a spokesman for the State Administration of Foreign Exchange (SAFE), said on April 22 . The yuan fell to a seven-month low last week.

4) The regulator is not particularly worried about the outflow of funds, since, according to the forecasts of officials, it will be replaced by an inflow.

It also became known during the week that in March, foreign investors sold shares of Chinese companies for 45 billion yuan ($7 billion) – the outflow of funds from the market was the highest in almost two years. At the same time, international funds reduced their investments in Chinese bonds to a record low for the reporting month.

5) China has started buying Russian coal to ensure energy security.

Expectations for this week

News of a possible coronavirus outbreak in Beijing and the continued tight restrictions in Shanghai will determine market sentiment this week. Due to the pandemic, oil demand in China began to decline, and WTI quotes fell below $100/bbl on Monday, April 25. Nevertheless, we are optimistic about the dynamics of indices in China this week and expect the indicators to rise within 1%.

Dynamics of world indices

Source: Bloomberg, ITI Capital

Weekly calendar

Weekly calendar

Source: Bloomberg, ITI Capital

Market indicators

Source: Bloomberg, ITI Capital

Stock quotes of Chinese technology companies

Source: Bloomberg, ITI Capital

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