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More Records Smashed In Hong Kong As China Data Emboldens Bulls

It's just one right after another, day after day after day.

Here’s what we said on Sunday evening about the Thursday data deluge out of China:

As usual, “stability” and “resiliency” will likely get tossed around a lot once the data hits, barring some kind of oops moment that finds Beijing forgetting to fudge the numbers. For what it’s worth, consensus on the GDP print is +6.7% Y/Y.

Well, China didn’t forget to fudge the numbers and sure enough, they came in just as expected with a slight bias towards beating. To wit:

  • China’s Economy Grows 6.8% in 4Q Y/y; Est. 6.7%
  • China’s economy grew 6.9% Y/y in 2017; est. 6.8% (range 6.7%-6.9%, 46 economists)
  • Industrial production in Dec. rose 6.2% y/y; est. 6.1% gain (range 5.9%-6.8%, 43 economists)
  • Dec. retail sales rose 9.4% y/y; est. 10.2% y/y (range 9.8%-11.0%, 43 economists)
  • Fixed-asset investment excluding rural households up 7.2% y/y in 2017; est. 7.1% (range 6.8%-7.4%, 40 economists)

At this point, it’s entirely fair to say they’re just taking the consensus estimate and adding 0.1% to it. And look, that’s not a “conspiracy theory” because using the phrase “conspiracy theory” implies that something is a secret and that phrase also suggests there’s something nefarious afoot. Neither of those apply here. This isn’t a secret and rather than being indicative of something sinister, this has become a standing joke. So much of a standing joke in fact, that Bloomberg ran a story this morning called “To Predict China GDP, Pick a Number and Add 0.1 Percentage Point.”

 

To the extent the GDP print is real, that’s the first full-year acceleration since 2010 and it quite clearly indicates that the effort to crack down on speculation by reining in the country’s labyrinthine shadow banking complex has so far not derailed the real economy. That, in turn, likely means the crackdown on leverage and generalized financial risk will continue apace. Eventually, you’d like to see this growth translate into healthy profits that help the corporate sector reduce that giant debt burden, but I guess we’re going one step at a time here.

Anyway, mainland and Hong Kong shares rallied on Thursday and notably, mainland investors bought a net $968.7 million of Hong Kong stocks via the trading links with Shanghai and Shenzhen. That would be the most since December 30, 2016. Recall that if you look at valuations, Hong Kong shares are cheap compared to their mainland counterparts:

ChinaValuations

(Goldman)

That suggests southbound flows (via the connect) could support the onoging Hong Kong rally.

Flows

(Goldman)

On Thursday, the Hang Seng China Enterprise Index soared 1.8% to its highest since June 2015. That’s 15 straight days of gains, the longest streak ever. It’s up nearly 13% over the course of that run:

HShares

And it’s sitting at its highest level since the summer of 2015 when China’s margin-fueled equity “miracle” ended in tears:

HShares2

Meanwhile, the broader Hang Seng passed 32,000 for the first time and closed at a new record. That October 2007 peak is getting further back in the rearview mirror all the time:

HangSeng

So there you go. More records. It’s just one right after another, day after day after day.

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