The Central Economic Work Conference (CEWC) sent a clear message that economic stability being the top policy priority. In light of economic slowdown and the Party’s 20th Congress in 2022, the CEWC mentioned local authorities and ministries to be responsible for macro-economic stability and it highlighted policy stance with concrete measures in fiscal, monetary and property areas – i) accelerating fiscal spending and infrastructure construction, ii) a more flexible monetary policy, and iii) a marginal easing in real estate sector.
The CEWC highlighted detailed explanation and clarifications on long-term policy focus, i.e., common prosperity, carbon neutrality, and control of disorderly expansion of capital. We believe it will lead to adjustments in the pace and intensity of policy implementation, as the policymakers aim to lower extreme actions and encourage cautiousness in implementing measures. The CEWC statement also kept a number of hawkish wordings on anti-monopoly and fiscal policy, reiterating that counter-cyclical easing is likely to be intensified but unlikely to be aggressive.
We are getting more constructive on Chinese equities in light of the counter-cyclical easing policy tone being confirmed at the CEWC. Within Chinese equities, we reiterate our relative preference to the onshore A-share market. For the offshore MSCI China index, we would be mindful of three key challenges – i) more sensitive to faster-than- expected US tapering and interest rate lift-off, ii) potential pressure on liquidity from Chinese ADRs fund raising, and iii) multiple offshore Chinese developer bond maturities in 1Q22 may result in more volatility if there would be more defaults.
We have been advocating a barbell strategy and prefer i) companies and sectors with policy support to drive growth and ii) those with strong cash flow and dividend support. Near-term trading opportunities in real estate, internet/platform companies and materials on relief rebound. Chinese banks are approaching towards 4Q21 results announcement, and the sector offers a relatively high estimated dividend yield of 7%+. For investors focusing on long-term structural growth, the CEWC reconfirms our preference to
renewables and new energy vehicles sectors. We also prefer domestic consumption, but it will take
time to unfold. (Research Team)