China market round-up: July credit growth below expectations, industrial production dips, HK bourse posts half-year results
In this round-up, China’s money and credit growth disappointed, industrial production growth plunged and Hong Kong Stock Exchange posted lower trading fees but higher listing fees for July.
Monthly money and credit growth has come in below market expectations in China.
The volume of new renminbi loans plunged to Rmb1.06tr ($150bn) in July from Rmb1.66tr in June. Outstanding total social financing in July also plunged to Rmb1.01tr in July from Rmb2.263tr the month before, according to data from the People’s Bank of China on Monday.
“This was likely intentional to some degree – as policymakers had seen strong activity growth in June, liquidity stress in interbank markets was gradually fading, and trade negotiations appeared to be progressing at the time,” Yu Song, an economist at the Beijing Gao Hua Securities, wrote in a Monday note.
That said, Chinese regulators are likely to make two broad-based cuts to banks’ reserve requirement ratios this year, according to Ho Woei Chen, an economist at the United Overseas Bank.
“While we see less prospect of a cut to the benchmark lending and deposit rates, there is certainly scope for lowering money market rates such as the seven-day reverse repo rate to support liquidity in the financial system, in light of the shift towards easing bias by central banks globally,” Chen wrote in a Tuesday note.
China’s July industrial production (IP) growth dipped to 4.8% year-on-year from 6.3% in June, according to a Wednesday statement from the National Bureau of Statistics.
Retail sales grew 7.6% year-on-year in July compared with 9.8% in June, affected mainly by a contraction in auto sales and weaker property-related sales. Year-on-year growth in fixed asset investments also slowed to 5.7% in July from 5.8% in June.
“The weakening of activity growth in July was the direct result of weaker domestic policy supports since the end of June,” Beijing Gao Hua Securities’ Song wrote in a Wednesday note.
He further argued that the activity growth would only strengthen with clear policy support.
In separate news, sales of new energy vehicles (NEVs) in China fell by 4.7% in July year-on-year despite the preferential policy in purchasing NEVs. This is the first drop in more than two years, according to data published by the China Association of Automobile Manufacturers on Monday.
Hong Kong Exchanges and Clearing (HKEX), parent of the city’s stock exchange, saw its trading fees drop 21% for the first half of the year as the US-China trade war and the past two months of political unrest in Hong Kong damaged market sentiment.
Trading fees fell to HK$952m ($121.4m) for the six month period ending in June, according to the bourse’s first half earnings report published this week. Listing fees, however, were up from HK$445m to HK$475m year-on-year after the exchange hosted 84 IPOs during the period, topping global stock exchange rankings.
The HKEX also saw record half-yearly Stock Connect revenue of HK$4bn, up 39% from the same period of 2018, after a surge in turnover following the inclusion of China’s A-shares in global indices, according to an HKEX announcement.
Bond Connect, meanwhile, recorded a 94% year-on-year rise in average daily turnover to Rmb6.6bn as Chinese renminbi-denominated bonds were included in the Bloomberg Barclays Global Aggregate Indices in April.
China foreign direct investment (FDI) inflow from January to July rose 7.3% year-on-year to Rmb533.1bn. In July alone, FDI reached Rmb54.82bn, up 8.7% year-on-year, the Ministry of Commerce said on Tuesday.
Investments from Germany, Korea, Japan, the Netherlands and the European Union as a whole increased by 72.4%, 69.7%, 12.6%, 14.3% and 18.3% respectively.
There was a sharp increase in net outflows from China from $21bn in Q1 2019 to $85bn in the second quarter, according to Natixis China Capital Flow Tracker, published on Monday.
The sudden increase in capital outflow and devaluation of the renminbi cast minds back to similar developments in August 2015.
“Given the risk of additional tariffs from the US and China being labelled as a currency manipulator, the RMB is likely to face higher depreciation pressure and hence potential capital outflows,” wrote Alicia Garcia Herrero, chief economist of Asia Pacific at Natixis, in a Monday note. “We believe that a large depreciation will be avoided as it will push too much capital out of China and put further constraints on liquidity, and thereby growth.”
Commercial banks' total net profit grew 6.5% year-on-year and reached Rmb1.13tr by the first half of 2019, according to Monday data published by the China Banking and Insurance Regulatory Commission.
Commercial banks’ core tier one capital adequacy ratios stood at 10.71%, a 0.23 percentage point decrease from the end of last quarter. Tier one capital adequacy ratios reached 11.4%, a 0.11 percentage point decrease from last quarter.