OCBC TREASURY RESEARCH - Greater China - Week in Review 14 December 2020 - OCBC Bank
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OCBC TREASURY RESEARCH
Greater China – Week in Review
14 December 2020
Highlights
Tommy Xie I have been running from 7am to 11pm last week to try to attend as many talks as
Xied@ocbc.com possible from the week-long Singapore Fintech Festival. The non-stop 24 hours
program for five consecutive days was overwhelming but insightful. The third day
Impact Summit was an eye opener to me as I learned a lot about the urgency to
Carie Li deal with the climate change.
Carierli@ocbcwh.com
As suggested by UN chief Guterres last Saturday that all countries should declare a
climate emergency, China’s President Xi unveiled new plans to step up China’s
efforts to reduce carbon dioxide emission. China will lower carbon dioxide
emissions per unit of GDP by over 65% from the 2005 level, up from previous target
of 60-65%. Meanwhile, China will also increase the share of non-fossil fuels in
primary energy consumption to around 25% by 2030.
One of the most impressive speeches from Singapore Fintech Festival in my view
was from China’s banking and insurance regulator Guo Shuqing who questioned
the data ownership by big tech companies.
China’s Politburo concluded its December meeting, setting the tone for the
upcoming 2020 Central Economic Working Conference and 2021 tasks. The two
buzzwords from the meeting are “anti-monopoly” and “demand-side reform”. If we
look at the message together with Guo’s speech, it suggests that China’s antitrust
drive will probably start from the data ownership.
Given China’s belief in supply creating demand, we still think supply-side reform
will be the key driver to implement China’s dual circulation strategy. Nevertheless,
against the backdrop of rapid rising GDP per capita in China and increasing focus on
sustainability and green economy globally, we think green economy could be one
of the key breakthroughs to allow demand and supply to work hand in hand to
reinforce each other to boost the growth potential.
China’s central bank currency regulator announced last Friday that it will reduce
the macro prudential adjustment ratio for cross border financing to 1 from 1.25.
This reduction will scale back room for Chinese companies to borrow foreign debt
from overseas. This is part of China’s new focus on stabilizing leverage ratio.
China’s November economic data remained strong with trade surplus hit all time
high of US75 trillion. Nevertheless, China’s CPI fell by 0.5% yoy, first negative
reading in 11 years. We think CPI will remain in the negative territory for at least
next 3 months.
Although lower consumer inflation argued for easing monetary policy, we think
China is unlikely to react for two reasons. First, the current retreat of inflation was
mainly distorted by falling pork prices. Second, China’s focus has shifted to control
of leverage ratio. As such, we expect China’s yield to remain elevated despite falling
inflation. The widening real yield differential between China and US is likely to keep
RMB supported.
S&P Dow Jones indices announced on 10 Dec that it will remove 10 Chinese
companies from its indices effective from 21 Dec to comply with President Trump’s
executive orders. So far the impact of US-China tension has been largely restrained
to trade front. Nevertheless, there is also sign that the concern about the
Treasury Research & Strategy 1OCBC TREASURY RESEARCH
Greater China – Week in Review
14 December 2020
decoupling will be spilled over to financial sector. We will continue to monitor on
that front.
In Hong Kong, the government further tightened the social distancing measures as
Covid-19 situation continued to worsen. On a positive note, the government is
studying new and targeted measures to rescue the industries which are affected by
the tightening of containment measures. Meanwhile, the Financial Secretary
opined that it is inappropriate to tighten the fiscal policy next year. Furthermore,
Hong Kong signed a deal for 15 million doses of shots from two vaccine developers
with the first batch of 1 million vaccines to be received in next January. In short, the
supportive fiscal policy together with the vaccine progress may help to restore
business/consumer sentiments and pave way for economic recovery in 2021.
As the economy regains momentum, the trade, financial and housing sectors may
benefit. On trade front, on top of low base effect, imports and exports may both
grow around 5% next year as external demand may rebound while the trade
activities between China and the rest of the world in particular Asian countries may
expand further. This is in line with the exports forecast of Hong Kong Trade
Development Council who tips a rebound of 5% in 2021. In terms of financial
industry, the risk appetite may improve given the flush liquidity and the improving
economic outlook on vaccine progress. As such, loan demand may rebound in 2H
2021 while IPO market may remain active. In particular, over 25 qualified ADRs may
come to Hong Kong for secondary listings to raise over US$25 billion going forward
especially given the delisting risk. Hong Kong’s IPO rules may continue to attract
biotechnology companies as well. Finally, should both economy and labor market
rebound, combined with low interest rate and scarce housing supply, the housing
market may regain traction after the near-term correction associated with virus
resurgence.
Treasury Research & Strategy 2OCBC TREASURY RESEARCH
Greater China – Week in Review
14 December 2020
Key Events and Market Talk
Facts OCBC Opinions
▪ China’s President Xi Jinping addressed the Climate ▪ President Xi announced that China will lower carbon dioxide
Ambition Summit last Saturday. emissions per unit of GDP by over 65% from the 2005 level, up
from previous target of 60-65%. Meanwhile, China will also
increase the share of non fossil fuels in primary energy
consumption to around 25% by 2030. The latest
announcement is to support China’s plan to reach carbon
neutrality by 2060.
▪ China’s Politburo concluded its December ▪ The two buzzwords from the meeting are “anti-monopoly”
meeting, setting the tone for the upcoming 2020 and “demand-side reform”.
Central Economic Working Conference and 2021 ▪ Despite the rising US-China tension, the vision to reevaluate
tasks. the monopoly by big tech companies is shared by both
countries. The concern from Chinese regulator is clearly
heightening that increasing leverage on large amount of
personal data and capital by big tech companies may have
crowded out smaller rivals. China’s banking and insurance
regulator Guo Shuqing openly questioned the data ownership
last week in his speech in Singapore Fintech Festival. This
suggests that China’s antitrust drive will probably start from
the data ownership.
▪ Given China’s belief in supply creating demand, we still think
supply-side reform will be the key driver to implement China’s
dual circulation strategy. Nevertheless, against the backdrop
of rapid rising GDP per capita in China and increasing focus on
sustainability and green economy globally, we think those new
pillars will create room for China to create new growth engine
for domestic demand with the help of supply side reform and
fiscal policies. We think green economy could be one of the
key breakthroughs to allow demand and supply to work hand
in hand to reinforce each other to boost the growth potential.
▪ S&P Dow Jones indices announced on 10 Dec that ▪ So far the impact of US-China tension has been largely
it will remove 10 Chinese companies from its restrained to trade front. Nevertheless, there is also sign that
indices effective from 21 Dec to comply with the concern about the decoupling will be spilled over to
President Trump’s executive orders. Meanwhile, financial sector as a result of escalation of tension from the
securities issued by 18 Chinese companies will be outgoing Trump administration. However, given the nature of
also removed from its fixed income indices before complexity of financial linkage and connection, we expect the
1 Jan. impact on China’s financial linkage to the world capital is likely
to be limited.
▪ China’s central bank currency regulator ▪ Regulators increased the ratio in March during the initial
announced last Friday that it will reduce the outbreak of pandemic to encourage Chinese companies to
macro prudential adjustment ratio for cross borrow from the overseas market to support the economic
border financing to 1 from 1.25. recovery. Given China has shifted its focus to stabilize the
leverage ratio amid the effective virus containment, the
reduction of the ratio showed that China is scaling back the
room for companies to borrow overseas.
▪ Hong Kong government further tightened the ▪ As the government implemented some of the tightest
social distancing measures. For restaurants, containment measures since Covid-19 outbreak, coupled with
dining-in services are banned after 6pm. Besides, the expiry of Employment Support Scheme, we are concerned
gyms, sports centres, beauty parlours and that the number of business closures and the unemployed
massage establishments are forced to close. These population among the affected industries will increase.
measures are effective from 10 December to 23 ▪ On a positive note, Hong Kong’s leader Carrie Lam hinted that
December. the government is studying new and targeted measures to
Treasury Research & Strategy 3OCBC TREASURY RESEARCH
Greater China – Week in Review
14 December 2020
▪ Meanwhile, the restriction on visitors from rescue the industries which are affected by the tightening of
countries/regions other than Mainland China is containment measures. This together with the vaccine
tightened while that on visitors (excluding Hong progress may help to restore business/consumer sentiments
Kong residents) from Macau, Taiwan and and pave way for economic recovery in 2021.
Mainland China is extended till 31 March.
▪ Hong Kong signed a deal for 15 million doses of
shots from two vaccine developers. The first batch
of vaccines are expected to be received in next
January.
▪ Hong Kong’s Financial Secretary Paul Chan pointed ▪ In terms of fiscal health, Chan stated that government
out that 70% of foreign investors invested in A- expenditure should start to consolidate while any further
shares via stock connect as of end-March. Hong increase in government spending should match the growth of
Kong will continue to improve the stock connect government income. Meanwhile, he opined that it is
scheme and provide relevant risk management inappropriate to tighten the fiscal policy next year and
products. expected the fiscal balance to continue marking a deficit as
economy may not recovery until 2H 2021. In other words, the
government may maintain the loose fiscal policy but gradually
unwind the relief measures in 2H 2021 as it shifts the focus to
fiscal discipline. If this is the case, the overall economy may
regain momentum but the recovery for the hardest-hit sectors
may remain a bumpy ride next year.
▪ On the housing market front, Chan opined that housing price
is still far away from the level that is affordable to households.
As such, the government has no intension to relax the housing
control measures.
Key Economic News
Facts OCBC Opinions
▪ China’s goods trade surplus hit a record high of ▪ The stronger export was mainly attributable to rising demand
US$75.42 billion in November on the back of for Chinese goods amid resurgence of virus globally. Given
stronger than expected exports growth which rose Covid-19 vaccine is expected to be rolled out in the first half of
by 21.1% yoy. 2021 to the developed markets such as US and UK while there
is no clear timeline in Emerging markets, the recovery of
demand from the advanced economies but lack of alternative
production centres in EM markets may further underpin
demand for Chinese products.
▪ China’s CPI fell by 0.5% yoy, first negative reading in ▪ The weaker than expected consumer inflation was mainly due
11 years. to falling food prices, which dragged down the CPI by 0.44%.
On sequential basis, non-food prices fell by 0.1% mom, in line
with seasonal pattern due to falling flight ticket price and
hotel accommodation price in low season. Core CPI grew by
0.5% yoy, intact for five consecutive months. Despite China’s
strong post pandemic economic recovery, the weak CPI shows
that the recovery of final demand is still slow. Although lower
consumer inflation argued for easing monetary policy, we
think China is unlikely to react for two reasons. First, the
current retreat of inflation was mainly distorted by falling pork
prices. Second, China’s focus has shifted to control of leverage
ratio. As such, we expect China’s yield to remain elevated
despite falling inflation. The widening real yield differential
between China and US is likely to keep RMB supported.
▪ Hong Kong Trade Development Council (HKTDC) ▪ With regard to the local virus resurgence, the HKTDC opined
revised up the export growth forecasts for 2020 that it may not necessarily affect the exports given the
Treasury Research & Strategy 4OCBC TREASURY RESEARCH
Greater China – Week in Review
14 December 2020
from -10% to -3%, citing the signs of bottoming out recovered logistics and the strong demand for electronic
and supports from the recovery of China’s supply products and advanced therapy medicinal product during
chain and domestic demand. For 2021, the HKTDC pandemic period. However, the HKTDC think that not until
tips an export growth of 5% amid low base effect 2022 will the exports return to the level seen before US-China
and China’s continuous economic recovery. trade war started in 2018.
▪ We share the view that exports will decline around 3% in 2020
and rebound by around 5% next year. For imports, we tip a
decline of around 5% and a rebound of around 5% for 2020
and 2021 respectively. As such, the trade sector may remain a
bright spot of the economy next year on the back of global
economic recovery.
▪ KPMG estimates that Hong Kong’s total IPO ▪ According to KPMG’s report, a total of HK$131 billion raised by
proceeds for 2020 will grow by about 24% yoy to a nine ADRs so far this year accounted for 34% of Hong Kong’s
decade high of HK$389.9 billion, ranked the second total IPO proceeds. Meanwhile, a total of HK$61 billion raised
across the globe. The number of IPOs is expected to by 17 biotechnology companies represented about 16% of
drop by 13% yoy to 140. Hong Kong’s total IPO proceeds.
▪ Going forward, we expect the IPO market to remain active as
26 more qualified ADRs may come to Hong Kong for secondary
listings to raise some US$27.9 billion in total (assuming 6% of
the total market capitalization will be floating in Hong Kong
Exchange) especially given the delisting risk. Hong Kong’s IPO
rules may continue to attract biotechnology companies.
▪ Hong Kong’s housing price index and approved new ▪ This indicates that the housing market remained resilient
residential mortgage loans both increased for the owing to the receded local pandemic, the relaxation of social
second consecutive month by 0.7% yoy and 6.3% distancing measures as well as the prospect of scarce housing
yoy respectively in October. Furthermore, housing supply and low interest rates.
transaction volume advanced by 5.5% yoy to 6070 ▪ However, for the week ended 29 November, CCL index which
deals in November. tracks the secondary housing price declined for the second
consecutive week. This indicates that the housing market may
have faced renewed downward pressure in the near term
amid virus resurgence, the still dire business situation, and the
weakening labor market.
▪ On a positive note, in the medium term, the housing market is
expected to regain momentum thanks to several favourable
factors. First, overall economy including the labor market is
expected to improve gradually on the back of vaccine
progress. Second, local rates are expected to remain low as
major central banks are set to maintain the accommodative
monetary policy. Third, though the government vows to
increase housing supply, whether it could deliver the plan
remains uncertain especially given the disruption from Covid-
19. Housing construction plunged by 37.3% yoy to 11600 units
during the first three quarters of this year.
▪ In conclusion, we expect housing price index (+0.45% YTD as
of October) will drop up to 5% yoy by end of this year and
rebound by around 5% yoy in 2021.
▪ Macau’s average housing price rose by 6.6% yoy or ▪ The divergence between housing price and housing
2.9% YTD as of October to MOP108,532/square transaction growth may be attributable to the launch of new
meter. During the same month, housing transaction homes and the rebound of investment demand. Specifically,
volume retreated by 17.3% yoy or 10.9% mom to during National Day Holiday, the property developers
545 units. Approved residential mortgage loans also launched new homes with various sweeteners. This may have
plunged by 22.2% yoy to MOP2.7billion. diverted the demand from secondary housing market and
attracted investment demand. Local homebuyers who owned
more than one flat represented 5.77% of total local
Treasury Research & Strategy 5OCBC TREASURY RESEARCH
Greater China – Week in Review
14 December 2020
homebuyers in October, the highest since the government
started to implement housing control measures in March
2018.
▪ In the short term, the potential demand may be deterred by
the subdued short-term outlook of the economy and labor
market amid the lingering pandemic uncertainty. In the longer
term, the housing demand may be supported by the prospect
of economic recovery, low interest rate and limited housing
supply. In terms of housing supply, economic housing project
has been oversubscribed by 11.3 times lately, indicating
severe imbalance between supply and demand. Though the
government will kick start the social housing construction, it
may not be enough to meet the demand especially given that
Covid-19 has disrupted the construction activities. In
particular, housing completion and housing start tumbled by
41% yoy and 51% yoy respectively during the first ten months
of this year.
▪ However, the upside of housing market may be capped.
Specifically, after the government implemented supportive
measures for several years, most of the potential first-home
buyers, who have made up around 80% of total local
homebuyers since March 2018, may have already entered the
market. In a nutshell, we expect the average home price may
drop up to 5% by end of this year and rebound around 5% in
2021.
RMB
Facts OCBC Opinions
▪ The USDCNY consolidated between 6.50-6.55. ▪ We expect the pair to continue to consolidate ahead of new
waiting for new catalyst.
Treasury Research & Strategy 6OCBC TREASURY RESEARCH Greater China – Week in Review 14 December 2020 Treasury Research & Strategy OCBC Greater China Research Tommy Xie Carie Li Xied@ocbc.com Carierli@ocbcwh.com This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscriptio n, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons actin g on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC Bank, its related companies, their respective directors and/or employees (collectively “Related Persons”) may or might have in the future in terests in the investment products or the issuers mentioned herein . Such interests include effecting transactions in such investment products, and providing broking, in vestment banking and other financial services to such issuers. OCBC Bank and its Related Persons may also be related to, and receive fees from, providers of such investment products. This report is intended for your sole use and information. By accepting this report, you agree that you shall not share, communicate, distribute, deliver a copy of or otherwise disclose in any way all or any part of this report or any information contained herein (such report, part thereof and information, “Relevant Materials”) to any person or entity (including, without limitation, any overseas office, affiliate, parent entity, subsidiary entity or related entity) (any such person or entity, a “Relevant Entity”) in breach of any law, rule, regulation, guidance or similar. In particular, you agree not to share, communicate, distribute, deliver or otherwise disclose any Rele vant Materials to any Relevant Entity that is subject to the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID”) and the EU’s Markets in Financial Instruments Regulation (600/2014) (“MiFIR”) (together referred to as “MiFID II”), or any part thereof, as implemented in any jurisdiction. No member of the OCBC Group shall be liable or responsible for the compliance by you or any Relevant Entity with any law, rule, regulation, guidance or similar (including, without limitation, MiFID II, as implemented in any jurisdiction). Co.Reg.no.:193200032W Treasury Research & Strategy 7
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