Chinese Economic Update – 13 October 2014

Chinese markets hold ground following National Day bank holidays; trade surplus narrows during September

Chinese markets held their ground last week following several days of closure due to National Day celebrations. The resilient performance of Chinese shares came amidst a rout in developed markets that has seen losses of nearly 10% for many indices over recent weeks.

In addition to the positive performance from Chinese shares, the economy also received a boost on Monday morning when trade balance figures for September were released.

Here, official data highlighted a substantial decline in the Chinese trade surplus as higher than expected imports offset the steep and simultaneous climb in exports; leaving a surplus of $31 billion for the month as opposed to the anticipated $41.2 billion.

While a declining surplus can often be bad news for the economy, it does in this case have positive connotations for investors, in our view. This is given the underlying indication that despite deepening concern over the eurozone, external demand has improved for China relative to the same period last year, while domestic demand also appears to have remained resilient.

Going forward, our expectations remain very much the same as in previous weeks. This is that despite the positive trade balance data, we still see downside risks to growth and financial stability going forward.

Having said this, given the prospects for deregulation and greater foreign access to the market for A Class shares on the mainland, we do not anticipate a reversal in China’s recent stock market rally over the near term.

SSE Index Hourly Intervals



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