26 January 2020


A slew of economic data was released on Monday, sending mixed signals to investors about the strength of China’s economic recovery. The consumer price index accelerated at a more-than-expected 3.1 percent last month, reviving fears of inflation. That said, we believe that unlike India and Singapore, China does not urgently need to raise interest rates because the rise in prices could be short-lived, and the average inflation rate in the year to date is still below the official full-year target of 3.5 percent. Moreover, rising borrowing costs will hinder corporate and individual investment activity, curbing the fragile economic rebound, which has been reflected in unexpected drops in exports and power consumption. Even though the yuan’s strength has been blamed as the key reason for a decline in China’s overseas sales, we believe policymakers will continue to let the redback gain gradually to support domestic consumption and corporate overseas investment. According to official data, the redback’s daily midpoint against the US dollar has risen 2.36 percent this year.

Coal plays: Leading power players China Shenhua Energy Co. Ltd. (01088.HK, 601088.CN) and China Coal Energy Co. Ltd. (01898.HK, 601898.CN) are likely to benefit from the central government’s latest efforts to shut down substandard coal mines and stop approving new smaller mines. Their shares could get a bump from the move, which will help consolidate the fragmented industry and cut pressure on product prices from overcapacity. The closure of smaller coal mines is also environmentally friendly and could help ease pollution problems. China is reportedly planning to close more than 2,000 small coal mines that produce less than 90,000 metric tons per year by the end of 2015. Meanwhile, approvals for new mines with an annual production capacity of less than 300,000 metric tons will be stopped.

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