Traders eyeing National People's Congress

The National People Congress in Beijing today will be the first major forum since announcing some of the largest policy changes in three decades at the Third Plenum in late October last year.

Premier Li Keqiang is due to address the congress at 10:30 AEDT to deliver the ‘work report’. Most of his opening address will be standard political statements, however there are likely to be some announcements from the speech that will be of market relevance.

There are three major themes to watch out for:

  1. 2014 GDP growth targets
  2. Reform agenda – particularly around financial, healthcare and environmental policy
  3. The momentum in the economy from the central government’s perspective

The address is likely to cover GDP outlook.  The central government has yet to really outline where it sees Chinese GDP in 2014, and having seen China’s policy makers managing to change the perception that an 8%+ headline growth rates is needed to prevent unemployment, his announcement could see GDP growth in 2014 in the low seven bracket.

Having seen seven consecutive sub-eight quarter prints officialdom are turning ‘quality’ rather than ‘quantity’, as slower but more labour-intensive growth is seen as the future.

This all feeds into China’s reform agenda; structural growth problems are already under review and wasteful investment and capital management are now receiving more attention rather than output performance.

Managers are now being asked to invest in more structured and efficient manners, and considering the fiscal policies seen over the past six months (wringing out of speculative lending, credit market levers being pulled), and what was announced at the Third Plenum, the NPC is likely to see rubber stamping of policies that will implement for fiscal reform.

Other reform agendas that are likely to receive attention include healthcare, anti-pollution measures and the newly altered urbanisation policy. We are also looking to see if fiscal policy change extends to state-owned enterprises (SOE).

There has been growing momentum behind SOE dividends and increased foreign ownership. At the Third Plenum we learnt the party is looking to increase profit payout from approximately 10% to 30% over the next six years and that foreign ownership could rise from single digits to low double digits. Currently there is no timeline for the roll out of this policy however expectations are for growth to come sooner rather than later.

Economic momentum will be key to China’s 2014 and will be key to Australia’s continued growth.

Ahead of the Australian open

The much anticipated fourth quarter GDP print will be released today, growth in the fourth quarter is expected to grow by 0.7% for a year-on-year number of 2.5%. One thing that I am watching however has been the large increase in exports at the back half of the year and energy and material exports were at record levels. This could see the GDP print beating expectations, and considering the AUD remains well bid at 89 cents the market seems to be expecting this as well.

We are currently calling the market up 45 points on the 10am bell (AEDT) to 5445 as Russia steps back from its current military operations in the Crimea which saw global market having a nap back. This will put the ASX back at the 5450 resistance level.

Having seen the bulls being exhausted each time it has tested this level, the GDP number and other factor are going to have to work very hard to keep the momentum going.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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