"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 25 May: China to report medium-term lending facility (MLF) scale of operations, interest rate
• 27 May: China to report April industrial profits of enterprises above the designated size
• 28 May: Hong Kong to report April exports, imports data
• 29 May: Macau to report exports, imports data
• 31 May: China to report May reading for Manufacturing Purchasing Managers’ Index (PMI)

Next week should be relatively quiet in terms of major data releases for Chinese markets. With Hong Kong observing a public holiday on Monday, 25 May, the local market will be closed for one day.

For PMI, we expect the May reading to remain within expansion territory and improve from April. China’s official manufacturing PMI for April came in at 50.3 against expectations of 50.1 and the previous 50.4 reading. The non-manufacturing PMI eased to 49.4 from 50.1, below the expected 49.8, while the composite PMI slipped to 50.1 from 50.5. Seasonally, April manufacturing PMI usually softens from March as production and new export orders tend to moderate after the first-quarter peak. Over the past decade, April manufacturing PMI averaged around 0.8 percentage points below March, with declines of more than 2 percentage points for both 2022 and 2023. This year, however, the better-than-expected headline figure was supported by a counter-seasonal rebound in new export orders: China’s exports rose 14.7 per cent in the first quarter, and high-frequency data suggest export momentum remained resilient in April with port container throughput rising 4.7 per cent year-on-year through the month. Despite elevated geopolitical uncertainty, the export rush has not fully faded. Looking ahead, Labour Day holiday demand and the peak construction season should provide modest support to services and construction activity in May. Over the medium term, policy support for new infrastructure, property market stabilization, and urban renewal; together with continued strength in high-tech manufacturing led by “AI+”, should continue to underpin activity.

For MLF, around RMB 2.1 trillion (USD 308.7 billion) in medium- and long-term funding is maturing this month. Despite this sizeable rollover pressure, the People’s Bank of China has not opted for broad-based liquidity injections and has instead continued to scale back operations. The central bank’s outright reverse repo operations brought the cumulative monthly reduction to RMB 1 trillion (USD 147 billion) in the first two weeks of May, extending the net liquidity withdrawal trend from March. This suggests that domestic liquidity conditions remain relatively comfortable, and highlights the central bank’s intention to guide excessively low market rates closer to the policy rate. In our view, overall funding conditions in May are likely to shift gradually from the relatively loose backdrop seen in April towards a more neutral-to-accommodative stance.

Equity market performance weakened over the past week. As of Thursday, 21 May, the MSCI China Index was down 3.05 per cent while the Shanghai Composite declined 1.41 per cent. The Shenzhen Component and ChiNext indices fell by 2.02 per cent and 2.53 per cent, respectively. Large-cap stocks slightly outperformed their small- and mid-cap peers while growth stocks modestly outpaced value. In the near term, following the steady rise in the A-share market and the ChiNext Index’s fresh high last week, some profit-taking and wider divergence in investor positioning cannot be ruled out, suggesting a more range-bound phase of consolidation.

Over the medium term, however, we do not think the broader upward trend has materially changed. The latest ChiNext breakout has been driven by industry-cycle tailwinds and improving earnings, with fundamentals continuing to validate strong growth expectations. At the same time, A-share capital is still rotating away from lower-growth sectors such as financials, property, and traditional cyclicals towards hard-tech growth areas with high R&D intensity and stronger structural upside. As earnings are released, valuations re-rate, and fresh capital enters the stock market, the medium-term uptrend should remain intact, reinforcing the case for focusing on core structural themes for equities. 

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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