Conditions for the Recovery of Chinese Asset Prices

A recent analysis by CSC Securities (中信建投) delineates the prerequisites for the revival of Chinese asset prices. These include the halt of social financing contraction, the extension of leverage and demand. Analysts note that China is unlikely to enact robust stimulus measures currently.

What Challenges Do Chinese Assets Face?

Insufficient Effective Demand: The transitional phase of the economy incurs growing pains, resulting in a lack of impetus for economic revival, which in turn impacts asset performance and risk appetite.

Tight Global Dollar Liquidity Owing to a Strong Dollar: In recent times, the strain on global dollar liquidity has exerted pressure on Chinese assets.

What Conditions Are Required for the Recovery of Chinese Asset Prices?

Expansion of Financial Conditions: This entails the cessation of the year-over-year decline in social financing and M1 money supply, coupled with the implementation of credit easing policies leading to leverage and demand expansion, thus catalyzing asset recovery.

Boosting Domestic Demand: The market harbors renewed hopes for domestic demand. Should consumption sustain its recovery and the real estate sector exhibit continued improvement, it would bolster risk appetite for Chinese assets.

Loose Monetary Policy: Easing of monetary policy would aid in enhancing market liquidity, further propelling asset price recovery. Nonetheless, the efficacy of the policy hinges on the expansion of leverage, i.e., demand expansion.

Will China Implement Strong Stimulus Measures?

At present, it seems improbable that China will adopt aggressive stimulus policies. The Politburo meeting characterized the current issue of insufficient effective demand as a natural byproduct of economic transformation, underscoring that the watchword for China’s future economic progress is “high-quality development.” This implies that the government favors fostering economic growth via structural reforms and high-quality development, rather than resorting to expansive stimulus measures. Hence, despite market anticipation for robust stimulus policies, they are unlikely to materialize in the near term.

What Are the Risks for Chinese Assets Moving Forward?

Uncertainty in Consumption Recovery: While household consumption has started to bounce back, it has not yet returned to pre-pandemic growth rates. Should consumption falter once more, the momentum for economic recovery would be considerably diminished, posing a significant risk to the market.

Uncertainty in the Real Estate Sector’s Recovery: Following a protracted slump, the real estate industry is exhibiting tentative signs of recovery, yet several indicators remain in negative territory. The stability and future trajectory of the real estate market remain uncertain, potentially affecting economic performance and asset prices in the future.

Impact of Tight Monetary Policies in Europe and America: Tight monetary policies in Europe and America could have unforeseen repercussions, dampening global economic growth and asset prices. Such external tightening measures may pose risks to the domestic economy and financial markets.

Uncertainty of Geopolitical Conflicts.