"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 22 December: China to report December 1-year and 5-year loan prime rates (LPR)
• 22 December: Hong Kong to report November Consumer Price Index
• 22 December: Taiwan to report November employment statistics
• 26 December: Macau to report 2024 gross national income
• 27 December: China to report November industrial profits

Next week will be relatively quiet on the data front as the holiday season approaches. The Hong Kong Exchange will operate half day on 24 December, while trading will be closed on 25 and 26 December.

On the industrial side, profits of enterprises above the designated size are expected to remain broadly stable in November. From January to October, operating revenue for these firms rose by 1.8 per cent year-on-year while profits grew by 1.9 per cent, marking three consecutive months of cumulative improvement. Equipment manufacturing and high-tech manufacturing led the gains, with profits up 7.8 per cent and 8 per cent, respectively. Across services, large firms posted a 7.8 per cent rise in profits over the same period, supported by robust growth in high-tech and strategic emerging service sectors. Meanwhile, a narrower decline in the Producer Price Index had been recorded in November, down 2.2 per cent year-on-year, signalling a gradual improvement in the business environment. Thus, we expect one-month and cumulative operating revenue for November to remain stable or possibly edge higher.

On the policy front, the likelihood of a near-term cut in the LPR or reserve requirement ratio appears low. Growth-stabilising measures and easing external uncertainties have kept the economy on a weak recovery path. Macroeconomic policies are expected to maintain an accommodative tone, with moderately loose monetary conditions in place to ensure ample liquidity. This is complemented by continuing fiscal stimulus and lower financing costs. Looking ahead, we anticipate an LPR reduction of more than 30 basis points in 2026 to support reasonable credit growth, stimulate consumption and investment, and ease government financing burdens.

Equities were subdued over the past week, with big declines seen in previous days. As of Thursday, 18 December, the MSCI China Index fell by 1.85 per cent, the Shanghai Composite slid by 0.33 per cent, the Shenzhen Component dropped 1.54 per cent, and the ChiNext Index declined by 2.73 per cent. Large-cap stocks continued to outperform, with value names edging ahead of growth peers. Historically, the spring rally that often begins in December is shaped by liquidity conditions, policy signals, industry trends, and valuation sentiment. During the rally’s upward phase, technology growth and cyclical sectors tend to lead, while consumer sectors dominate during the consolidation period. Liquidity easing, alongside supportive policies and industry momentum, remains the key driver for growth sectors, while cyclical sectors are more sensitive to corporate fundamentals such as profitability and valuation metrics.

This piece has been co-produced with Yiyi Capital Limited in Hong Kong, a China specialist and a part of a global financial services group.

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