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Research Market strategy
by Swissquote Analysts
Live Analysis

Chinese shares higher amid conciliatory authorities

1

Chinese stocks are bouncing off, and this is a welcome signal for the Chinese market, which has been facing a turbulent year in 2018. Despite a weaker-than-expected economic growth, Chinese economy has been slowing down in 3Q 2018, growing at a pace of +6.50%, lowest since 2009 amid declining manufacturing activities. Although Chinese private consumption remains steady in September according to recent releases, the growth outlook signals moderation, as issues relating to trade tensions and credit crunch continue to keep investors at bay. However, current growth outlook remains in line with Beijing growth target while recent statements from Chinese regulators appear to be reassuring, which should turn out to be at the benefit of Chinese shares.

Indeed, Beijing regulators confirm their concern of current sluggish economic outlook and provide market participants with targeted actions including flexible credit granting for private companies while commercial banks must comply with pledged equity rules in order to ensure stock market stability. Additionally, the Ministry of Finance, Liu Kun, confirms an expansion of fiscal policy in the form of tax cuts estimated along 1% of GDP (approx. $120 billion), which should weigh in favor of an expansionary stimulus policy bias rather than deleveraging in the coming quarters. Furthermore, recent announcement that the Trump – Xi trade talk will take place one day before the G20 summit on 29. November 2018, one year after prior fast-to-face meeting between both leaders in Florida, signals the willingness of both sides to de-escalate current trade tensions.

Accordingly, Chinese indexes have been rising higher, as a wave of optimism is supporting the marketplace. The Shanghai CSI 300 had its largest intraday gain since January 2015 gaining 4.32% while the Hong Kong Hang Seng rose 2.35%, marking its largest rise since mid-September 2018. Therefore, we expect current rally to remain, as Chinese authorities as well as upcoming trade talks remain market-positive events.

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