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21 Mar 2016
China: Calm seas...for now – Deutsche Bank
Research Team at Deutsche Bank, notes that the Chinese fixed asset investment (FAI) rebounded in the first two months of 2016, helped by the rise of property investment.
Key Quotes
“The government set M2 growth target in 2016 to 13% from 12%, the first time it was raised since 2009; and the fiscal deficit target was widened to 3% from 2.3% last year. The overall policy stance will continue to be on the easing side, and we see balanced risk to our Q1 growth forecast of 6.8% and moderate upside risk to Q2 growth forecast of 6.8%.
Main risks: Growth of industrial production and retail sales both moderated in Jan-Feb. The current boom in the property sector might not be sustainable given the structural over-supply problem. We therefore expect GDP growth to slow down to 6.6% in Q3 and 6.4% in Q4.
Strategy: We see modest upside risk on CGB/policy bank bonds on duration supply concern. We believe the central bank’s liquidity support will anchor expectation of money market rates and that the relatively weak appetite for equity and credit risks would keep decent appetite for cash bonds.
We maintain our range trading view with a bias to add duration on market corrections. For FX, it looks like the 'macro prudential' measures put by the authorities, in conjunction with their intervention in onshore and offshore RMB markets, is paying off. Hence In the short term, the authorities should be able to limit CNY weakness. We, however, doubt though the longevity of these conditions. As such, we continue to prefer a USD/CNY 6M call spread, despite near-term challenges.”
Key Quotes
“The government set M2 growth target in 2016 to 13% from 12%, the first time it was raised since 2009; and the fiscal deficit target was widened to 3% from 2.3% last year. The overall policy stance will continue to be on the easing side, and we see balanced risk to our Q1 growth forecast of 6.8% and moderate upside risk to Q2 growth forecast of 6.8%.
Main risks: Growth of industrial production and retail sales both moderated in Jan-Feb. The current boom in the property sector might not be sustainable given the structural over-supply problem. We therefore expect GDP growth to slow down to 6.6% in Q3 and 6.4% in Q4.
Strategy: We see modest upside risk on CGB/policy bank bonds on duration supply concern. We believe the central bank’s liquidity support will anchor expectation of money market rates and that the relatively weak appetite for equity and credit risks would keep decent appetite for cash bonds.
We maintain our range trading view with a bias to add duration on market corrections. For FX, it looks like the 'macro prudential' measures put by the authorities, in conjunction with their intervention in onshore and offshore RMB markets, is paying off. Hence In the short term, the authorities should be able to limit CNY weakness. We, however, doubt though the longevity of these conditions. As such, we continue to prefer a USD/CNY 6M call spread, despite near-term challenges.”