Positive expectations for Chinese shares

A recent raft of data from China could help lift Chinese shares to a positive week.

Chinese Flag
Source: Bloomberg

Over the weekend, China released figures that showed consumer prices rose 2.3% year-on-year in July, in line with analyst expectations.

However, what may have caught more attention were producer prices. While the figures also matched market consensus, down 0.9%, this extends their longest negative streak in over15 years.

With the threat of deflation persisting, it suggests that China still has room for further monetary easing and is closer to releasing more measures, particularly for the property sector.

Any news on this front will be a boost for investor sentiment which will help the prices of Chinese stocks, as well as commodities such as copper.

In Q2, China had loosened monetary conditions at the fastest pace in almost two years, this was  based on Bloomberg’s China Monetary Conditions Index. It rose 6.71 points to 82.81 from the previous quarter.

Positive indicators

The mini-stimulus measures rolled out in the first half of the year have appeared to successfully trickle into the economy.

Last Friday, China recorded  a record trade surplus for July at $47 billion. Exports grew at their fastest pace in 15 months, at 14.5% year-on-year, more than double the growth from the previous month.

Chinese stocks have also been on a good run during the past month. The Shanghai Composite has been among the top performers, up 7% from July 1, 2014. Over the same period, China H-Shares are up 4.8%, the China A50 rose 8% and the Hang Seng Index is up 4.9%.

Ahead of the Chinese open

Investors’ confidence could start to return to the market as headlines over geopolitical concerns start to fall out of the spotlight.

There will be a round for Chinese data this week, largely over the next two days. Some of the July figures to watch out for include M2 money supply, new loans, industrial production, and retail sales.

We are calling for China A50 to be up 0.73% at 7,260.6 points; China H-shares to be up 1.29% at 10,975.8 points; Hong Kong HS50 to be up 0.96% at 24,558.5 points; and MSCI Singapore up 0.55% at 377.55 points. 

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