One day after fears of rolling margin calls tied to pledged-stock transactions sent Chinese equities tumbling, the Shanghai Composite closed the week with a barnburner of a session, rising 2.6% in the best day since August 7.
Friday was even better for the ChiNext, which rose the most since late June – the gauge of tech stocks and small caps surged nearly 4%.
Obviously, this was the result of comforting rhetoric from officials.
Ahead of a raft of economic data that included a GDP miss (6.5% in Q3 versus 6.6% expected) and a beat on September retail sales (+9.2% versus 9% expected), Chinese authorities aggressively jawboned the market.
The joint effort involved CSRC imploring local governments to avoid exacerbating the risk of liquidated collateral in pledged-shares deals, the China Banking and Insurance Regulatory Commission reiterating the notion that what’s happening in Chinese equities isn’t a reflection of economic fundamentals and Yi Gang himself saying the PBoC will support financing for non-SOEs.
Between all of that and suspected state buying later in the session, Chinese equities managed to brush off what was, on balance, disappointing econ. The beat on retail sales is probably good news to the extent it means there’s scope for China to lean on domestic consumption to offset a demand shock from abroad, but the GDP and IP numbers weren’t inspiring.
For Goldman, the policymaker rhetoric on Friday was yet another sign that Beijing isn’t pleased. “We expect policy makers to adjust down the growth target for next year to a range of 6.0-6.5% from around 6.5% for this year so if GDP growth can slow at the pace seen before 3Q the government would probably view it as acceptable”, the bank wrote Friday, but cautioned that “the latest dataset and market performance is unlikely to be viewed as acceptable by policy makers, so over the past two weeks virtually all ministers from the key ministries made comments, whether they had any tangible policy actions to announce at the time or not.”
The 6.5% growth in Q3 was, of course, the slowest pace of expansion since the crisis and generally speaking, the market expects export growth to slow in Q4 as the effects of the tariffs kick in.
“The outcome is consistent with the picture painted by subdued infrastructure and weakening industrial production data for Q3 [and] while we have seen some signs of stabilization in domestic demand in September, we think downward pressure on growth will continue in Q4 and Q1 2019,” Barclays said Friday.
You can probably expect further easing into year-end to mitigate the slowdown and now that China is clear of the U.S. Treasury’s currency manipulator report, Beijing is unlikely to be concerned about the prospect of a growing policy divergence weighing further on the yuan.