‘Mock Starket’ (Meanwhile, In China)

A day after state-backed funds intervened to stanch the bleeding in mainland Chinese stocks, Weibo users were unable to search for “stock market.”

Although they could still post about shares, hashtags were reportedly a no-no on Wednesday. You could search for individual terms like “plunge” and “stocks,” but Beijing looked to be actively censoring “stock market,” or at least as a trending topic. As Bloomberg put it, “authorities appeared to make it somewhat difficult to find out what happened on the mainland.”

“We’re sorry, we couldn’t find anything for ‘stock market.’ Did you mean ‘mock starket?'”

The rout on the mainland eased a bit, but the CSI 300 managed just a 0.7% gain. That hardly counted as a rousing rebound considering how far shares have fallen after hitting a 13-year high last month.

The tech-heavy ChiNext fared better, rising 1.6%. It’s still down more than 20% from its highs.

Although some suggested on Wednesday that more state-buying would likely be needed to stabilize the market, others cautioned that large-scale purchases were unlikely. “We are facing a market correcting from a record high and Beijing would like to see some froth removed,” Hengsheng Asset Management remarked. An analyst at Beijing Hone Investment Management said state vehicles would be somewhat “aloof” as long as the SHCOMP stays above 3,000. It sat near 3,358 Wednesday, down more than 4% in March.

Meanwhile, producer prices in China jumped 1.7% YoY, data for February showed. That’s the most since late 2018, and it raises the specter of exported inflation at a time when PMIs in developed economies have betrayed acute price pressures. The latest trade data showed China’s exports boomed during the first two months of 2021.

Research shows factory-gate prices in China are correlated to the level and volatility of global inflation. So is oil which, in case you haven’t noticed, is up smartly from the pandemic nadir. Higher commodity prices are a factor in Chinese producer inflation, as are base effects.

Of course, this also suggests greater demand and will help bolster bottom lines for domestic industrial firms. You may recall that PPI deflation was a drag on profits locally, so this isn’t necessary a “bad news” story. “Manufacturers raced to fill export orders, raising expectations for robust growth in the world’s second-largest economy in 2021,” Reuters wrote.

“The rise in oil and ferrous metal prices was the main culprit, rising 7.5% MoM and 5.9% MoM, respectively,” SocGen’s Michelle Lam and Wei Yao wrote, adding that “the upswing in the upstream sector has also led to a pick-up in manufacturing goods PPI [while] consumer goods PPI remained unchanged at -0.2%, though that still marks a modest improvement from Q4 2020.”

Consumer prices fell again in February, but analysts generally seem to think that’s transitory. The figures are still subject to distortions from pork prices. “That trend could reverse with the re-emergence of [African swine fever] in parts of the country [but] the statistics bureau reduced pork’s weighting in the CPI basket last month,” Bloomberg noted. Much hinges on the Chinese consumer. Retail sales were slow to catch up to industrial production in the aftermath of the pandemic plunge and are still less than robust. Core CPI in China was unchanged in February.

Meanwhile, credit growth was brisker than forecasts implied last month. New yuan loans were 1.36 trillion against estimates for 950 billion. At 1.71 trillion yuan, aggregate financing was considerably higher than the 910 billion the market expected.

Demand was a factor, a positive development, but there are more questions than answers. Beijing is keen to continue the deleveraging push, and authorities’ crackdown on alternative lending could have implications for consumer credit going forward.

Moreover, analysts expect the PBoC to be wary of flooding the market with credit. Officials have repeatedly emphasized that central banks should take care not to foster bubbles or conduct policy in a way that’s conducive to creating speculative excess. And they should know.

“Putting January and February together to smooth out the impacts of Lunar New Year, TSF growth was still on a decelerating trend,” SocGen’s Lam remarked. “Also, given all the deleveraging measures (on housing, fintech and SOEs), we remain of the view that China’s credit growth will keep sliding from here.”


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