China Strategy Tracker_Wait and hope

Summary of Key Points from the Equity Research Report Industry Overview - The report focuses on the China Equity Strategy and highlights the current economic indicators and market conditions in China as of December 2024 [2][11][27]. Core Insights and Arguments 1. Economic Indicators: Most economic indicators missed expectations in November, indicating that the economy is still struggling. Retail sales softened to 3.0% y-o-y (expected 5.2%), and year-to-date FAI growth slowed to 3.3% y-o-y [27][36]. 2. Policy Support: More proactive policy support is anticipated, particularly for consumption, as indicated by the language used in the December Politburo meeting [27][36]. 3. Market Outlook: Despite current challenges, there is a projected 12-18% upside for the stock market due to ample liquidity and potential earnings improvement from a low base [27][36]. 4. Bond Market Divergence: The 10Y CGB yield fell to a record low of 1.70%, reflecting a divergence in economic outlook between the bond and stock markets [27][36]. 5. Sector Performance: Notable sector data includes a 120% y-o-y increase in mutual fund issuance and a 143% y-o-y increase in southbound net inflows, indicating improved market liquidity [27][36]. Additional Important Content 1. Manufacturing and Infrastructure: Growth in both manufacturing and infrastructure investment has decelerated, while property investment has become less of a drag, showing a decline of -11.6% y-o-y [21][27]. 2. House Sales: Monthly sales from the top 100 developers fell 6.9% y-o-y in November, indicating a return to contractionary territory, although there was a slight pick-up in second-hand housing prices in first-tier cities (+0.4% m-o-m) [27][55]. 3. Global Economic Context: The US economy shows resilience, but rising unemployment and declining housing demand could pose risks. US CPI was reported at +2.7% y-o-y in November, indicating persistent inflation [27][36]. 4. Sector Earnings Revisions: Non-bank financials and banks saw the most upward earnings revisions, while real estate and conglomerates were revised down the most [34][36]. Conclusion The report provides a comprehensive overview of the current state of the Chinese economy, highlighting the challenges and potential opportunities within the market. The anticipated policy support and liquidity improvements could provide a favorable environment for investors despite the current economic struggles.