- China’s top party leaders held Politburo meeting on July 24 to set policy directions for 2H23. It acknowledged challenges faced by the economy and called for counter-cyclical policies. It is the first time Politburo mentioned counter-cyclical policy adjustment since Dec 2019
- No massive stimulus is mentioned, as expected, but top leaders’ tone changes on property and plans to resolve local govt debt issue among positive surprises
- Market to react positively but a sustained rebound needs timely and concrete actions
- Quality property developers (e.g. Longfor), insurers (e.g. Ping An) among sectors may rebound from the reference of defusing risks in property industry and local government debt issues; internet companies (e.g. Tencent, Meituan) may benefit from overall improving sentiment after recent selloff
What’s new
China’s senior party leaders held Politburo meeting on July 24 to set policy directions for the 2H23. The meeting, chaired by President Xi Jinping, acknowledged new difficulties and challenges faced the economy, and called for stronger counter-cyclical policy adjustment. It is the first time Politburo mentioned counter cyclical policy adjustment since Dec 2019. It also vowed to better prevent and resolve some of the key risks in country.
Specifically, on top of largely-unchanged tone on monetary/fiscal policies, as well as the focus on boosting consumption and private economy, the top leaders aim to
- optimize property policies to adapt significant changes in demand/supply dynamic in property market
- formulate and implement a basket of measures to resolve local government debt issue
- accelerate local government special bond issuance and deployment
- activate capital market and boost investors’ confidence
Fig: Language comparison of recent Politburo meetings on economy
Our take
Acknowledging issues paved way for more actions. Acknowledgement of new challenges/difficulties in the economy and calling for strengthening counter-cyclical policies indicated more measures will be rolled out in the rest of year.
While no large-scale stimulus was announced during the Politburo meeting, as we expected, the mention of “optimizing property policies” (without reiterating “housing is for living not for speculating”), “formulating a basket of measures to resolve local government debt issues” and “activating capital market” are policy makers’ response to address some of the key concerns on the economy. We believe it will help ease previous market worries on policymakers’ willingness to cushion the macro slowdown and resolve risks in financial system, to a certain extent.
Positive short-term market response to the readout. With tempered policy expectation, light positioning, attractive valuation, and extremely bearish sentiment, we believe the slightly more supportive policy tone will trigger a rebound in HK stock market.
Implementation remains key. That said, for market to stage a sustainable and meaningful rally, timely and concrete actions is a must. The current pace in implementing key policies, such as supporting private economy, has already been slower than we expected. We see downside risk in our 12-month HSI target of 23,400 as the macro environment will weigh on corporate earnings recovery.
Stock picks. We think oversold quality property companies (such as Longfor), and insurance companies (such as Ping An) will see share price rebound after policy makers’ calls for defusing risks in property market and local govt debt issue. Internet stocks (i.e. Tencent, Meituan, Baba) will also benefit from overall sentiment improvement after recent selloff.