"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 7 July: China to report June external trade balance
• 7 July: China to report June import and export year-on-year growth rates
• 9 July: China to report June consumer price index (CPI)
• 9 July: China to report June producer price index (PPI)
• 10 July: China to report June M0, M1 and M2 money supply growth rate
• 10 July: China to report June Total Social Financing
• 10 July: China to report June new renminbi loans

Next week will bring a relatively heavier slate of macroeconomic data for China markets, with CPI, PPI and financing data to be the main items on the calendar.

We expect June CPI inflation to remain broadly stable or edge down slightly from May’s 1.2 per cent increase. The May reading stood unchanged from April as the seasonal pullback in travel demand after the Labour Day holiday and a slower uptick in international oil prices influenced domestic inflation. On a month-on-month basis, CPI fell 0.1 per cent, reversing a 0.3 per cent rise in April. Core CPI, which excludes food and energy, increased 1.1 per cent year-on-year but eased from the previous month, suggesting that the recovery in end-consumption demand remained moderate and the underlying price momentum softened slightly. Domestic refined oil prices have been cut twice as international oil prices dropped, while prices of agricultural products have been broadly declining. These factors may exert mild downward pressure on the CPI.

Meanwhile, producer prices are likely to show a mixed picture, with year-on-year increases still supported by base effects and earlier commodity strength although month-on-month momentum may weaken. In May, geopolitical tensions kept global commodity prices elevated while domestic demand for upstream raw materials was supported by AI computing capacity expansion, equipment upgrades, and restocking ahead of the summer peak season. As a result, May PPI rose 3.9 per cent year-on-year, 1.1 percentage points higher than in April to log the strongest reading since August 2022. The increase narrowed to 0.5 per cent month-on-month as the slowdown in crude oil price gains influenced industrial product prices. Since June, however, domestic industrial product prices have declined overall. We therefore expect PPI to decline month-on-month while rising only slightly year-on-year.

Financial data are also expected to remain under pressure in June. We estimate new RMB loans at around RMB 2 trillion (USD 294.4 billion), roughly halved from a year earlier, implying loan growth may slow to 8.7 per cent. New total social financing is expected to reach around RMB 3.16 trillion (USD 465 billion), down RMB 1.07 trillion (USD 157.5 billion) year-on-year with growth easing to 8.1 per cent from 8.4 per cent previously. M2 or broad money supply growth is expected to slow to 6.3 per cent from 7 per cent, while M1 growth may improve slightly to -4.1 per cent from -4.2 per cent. Overall, credit demand remains relatively weak and lower government financing is likely to weigh on aggregate lending. Although home prices in first-tier cities have shown signs of stabilisation over the past few months, nationwide home prices are still declining, likely to further constrain credit expansion.

Chinese equities generally softened over the past week. As of Thursday, 2 July, the MSCI China Index was up 1.92 per cent to recover recent losses, while the Shanghai Composite rose by 0.04 per cent. The Shenzhen Component and ChiNext indices fell by 1.80 per cent and 4.22 per cent, respectively. Small and mid-cap stocks outperformed large caps, while growth shares largely outpaced value.

Looking ahead, the range-bound consolidation in A-shares appears to be entering its final stage. The consolidation began in mid-May and showed signs of repair after early June, although levels remain below previous highs. By sector, market attention has recently shifted towards style rebalancing after showing signs of elevated crowding. The A-share market is about to enter interim results season, and stronger earnings in July and August could provide some support for the indices and gradually emerge as the main investment theme.

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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