China Equity Strategy_ Market Implications Post MOF Press Conference

Summary of Conference Call Notes Industry Overview - The conference call primarily discusses the implications of the Ministry of Finance (MOF) meeting in China, focusing on local government debt swaps and housing inventory management [1][1]. Key Points and Arguments 1. Local Government Debt Swaps: - The MOF confirmed that local government debt swaps would be the largest initiative of its kind in recent years, with expectations of a Rmb6 trillion scheme in the coming years. This is anticipated to alleviate austerity effects at the local government level, benefiting businesses affected by tax recovery and penalties [1][1]. 2. Housing Inventory Management: - The MOF's announcement marks the first use of government bonds to buy back housing inventory, reinforcing the government's commitment to stabilizing housing prices. This aligns with messages from a recent Politburo meeting, suggesting a quicker resolution of excess housing inventory, which is crucial for economic reflation [1][1]. 3. Market Sentiment and Fund Flows: - The commitment to a significant fiscal deficit expansion is expected to stabilize market sentiment in the near term, following volatility observed since late September. However, it is noted that fund flows may not return to pre-September levels due to the clear signal of a policy pivot despite a lack of detailed fiscal measures [1][1]. 4. Future Fiscal Measures: - With less than three months remaining in the year, further fiscal measures are likely to be incremental throughout 2025. The potential trough for corporate earnings growth remains uncertain, leading to a focus on earnings visibility and quality as investors seek optimal allocations [1][1]. 5. PBOC's Swap Facility: - The People's Bank of China (PBOC) launched a Rmb500 billion swap facility, with major financial institutions like Citic and CICC participating. This stabilization funding is expected to benefit large-cap A-share companies, particularly those with decent dividend yields and free cash flow [2][2]. 6. Long-term Index Upside Focus: - For medium- to long-term index growth, attention remains on the rollout of detailed fiscal stimulus actions, the speed of excess housing digestion, trends in China's 10-year government bond yields, and external factors such as global geopolitical developments and U.S. monetary policy [2][2]. Additional Important Content - The MOF's commitment to economic stabilization includes a promise of "ample room" for deficit expansion in the coming years, although there is limited clarity on consumption-targeted fiscal stimulus [1][1]. - The report emphasizes the importance of monitoring signposts for index upside and suggests that stocks with earnings and dividend visibility should be prioritized by investors [1][1]. This summary encapsulates the critical insights from the conference call, highlighting the strategic focus on fiscal measures and market stabilization in the context of China's economic landscape.