25 January 2020


Investor sentiment is expected to be mixed when China’s equity markets reopen on Tuesday after the seven-day National Day holiday. Investors are advised to make their bets selectively on stocks related to the retail, catering, transportation and hospitality sectors. An overhang for the Shanghai and Shenzhen bourses is that Chinese equities may catch up with the correction seen in other exchanges worldwide in view of the partial government shutdown in the United States. The congressional impasse over raising the US debt limit has yet to be resolved as the Oct. 17 deadline nears. Although the crisis is not expected to have an immediate impact on the US economic recovery, the increasing risk of a default on US government bonds will inevitably hurt investor sentiment. That said, China’s robust retail and catering sales during the Golden Week, up 13.6 percent year on year to 870 billion yuan (US$142 billion), are a welcome development for investors. Inexpensive mass consumption was the driver of the growth, reflecting the people’s strong confidence in the country’s economic recovery.

Reform challenges: While telling the world that he is fully confident about the future of the Chinese economy, President Xi Jinping shed some light on the theme of the third plenary session of the Communist Party in November. Deepening reform and opening-up in all respects will be the priorities for the rising giant, according to Xi’s speech given at the Asia-Pacific Economic Cooperation (APEC) CEO Summit in Bali. Yet investors should not be too optimistic as the reforms are likely to encounter resistance in the form of what Xi calls as development and institutional obstacles. That could mean further reform could upset some old power camps with vested interests, and the yet-to-be-resolved deadlocks on shadow banking and local government bonds might derail the reform plan.

– Contact the reporter at [email protected]