The Week In Hindsight, 16 June 2014

Chinese equities extended gains last week as CPI inflation data came in above forecasts off the back of higher food prices. The actual number came in at 2.5%, which represented a substantial increase from the previous month’s 1.8% and an overshot of the 2.4% official forecast.

In addition to higher inflation, growth in industrial production also accelerated faster than expected during the month with a May reading of 8.8% annualised growth, compared with the 8.7% forecast. On a slightly different side of the same coin, other economic data released during the week showed investment growth slowed to the lowest level in a decade in May.

All in all, economic data remains mixed. Inflation and exports have shown signs of resilience, while uncertainty continues to surround the outlook for consumption and investment. At present, the general consensus seems to be that the economy has deteriorated to a level that warrants greater intervention by policy makers, however; a raft of economic data is scheduled for release between the present time and when the Politburo & State Council are expected to meet in July.

Some of the above releases include manufacturing production, June CPI and Q2 GDP. Should the collective impact of the economic data point toward a still floundering economy then calls for more stimulus could become louder over the coming weeks, which would be positive for CNY equities.