Private banks were less than enthused by announcements at China’s recent Third Plenum which lacked radical reforms to inspire a quick turnaround in the country’s slowing economy.
On July 18, China concluded its Third Plenum – a major meeting held by the Chinese Communist Party roughly once every five years mapping out the direction of the country’s social and economic policies.
Onlookers hoped for signs of a swift economic turnaround. However, most of the reforms announced were focused on high-quality growth in the longer term, including support for strategic areas like the green technology and energy sectors.
Slowing Growth Unresolved
According to UBS Global Wealth Management in a note, it expects supportive policies to continue but with «no big stimulus in the short term». The bank said it will await follow-up announcements and the implementation of policy measures and the legal framework, «which could help reinforce China’s long-term growth».
«The ambiguity expressed in the final communiqué towards the need to prioritize growth is surprising,» said a Lombard Odier note authored by Asia chief investment officer John Woods and senior macro strategist Homin Lee which assigned a neutral stance to Chinese equities.
«Without convincing pro-market reforms and stimulus, we believe the country’s stock markets will struggle to generate interest among investors who have seen underperformance, weakening growth and a rising likelihood of tougher trade restrictions from the US and Europe.»
Property Hopes
Even the troubled real estate sector was not met with any surprises. According to a note by RBC Wealth Management, «property-related policies have come in largely as market participants expected».
This includes new rules to allow local government to abolish or reduce housing purchase restrictions and to scrap housing standards, such as value-added tax for mansions or luxury apartments, that could improve affordability. The real estate-related taxation system will be improved, according to the resolution, but the bank does not expect this to be rolled out until the housing market shows solid signs of stabilization.
July Politburo Meeting
Market watchers are now looking at an upcoming party meeting at the end of July as a more significant influencer of market expectations.
«The Third Plenum does usually announce cyclical policy changes which will more likely come from the July Politburo meeting,» UBP said in a note. «However, the communiqué acknowledged near-term growth headwinds and pledged to deliver enough stimulus measures to achieve growth around 5.0 percent over the coming years.»
