January 02,2013

The Chinese Year of Snake: A Market Twisting High and Low

By Lu Ting

A brief preview of December data to help you kick-start 2013. Well, you've already got the PMIs with the HSBC one surprising on the side and the NBS/CFLP on the downside. With rebounding GDP/IP/earnings growth and low inflation, we continue believing that the Chinese economy is in a sweet spot and can stay there through 1H13. The current macro backdrop should bolster asset prices from equities to commodities. On policy,

Beijing will be happily to sustain the current policy stance which could be featured as marginally pro-growth without big-bang stimulus. However, as the street's China GDP growth consensus has been increasingly ratcheted up by exuberant forecasters, investors should be wary of getting too optimistic in coming months. In 2012, macro environment was anemic to asset prices in 1H but turned increasingly supportive in 2H. In 2013, we expect the exactly the opposite. Macro environment could remain supportive of asset prices in 1H, but will likely turn less supportive or even negative in 2H as GDP/IP/earnings growth slows and inflation rises. 


·   Rising IP (industrial production) growth, rebounding GDP growth. IP growth may quicken to 10.3% yoy in Dec from 10.1% in Nov and we are quite happy to maintain 7.8% yoy GDP growth forecast for 4Q12 (vs 7.4% in 3Q12). More economists will likely follow our view of higher yoy GDP growth in 1H13 (8.3% yoy) and moderation in 2H13 (to 8.0% yoy) by taking into account base effects and restocking.

·   A moderate increase in CPI and PPI inflation. We expect CPI inflation to edge up to 2.3% yoy in December from 2.0% in November, mainly on higher food prices. PPI inflation could rise to -1.8% yoy in December from -2.2% in November.

·   Monetary condition to stay accommodative. In Dec, new loans may edge down to RMB500bn from RMB523bn in Nov. Growth of outstanding amount of revised TSF (total social financing) could slow to 19.7% yoy in Dec from 20.2% in Nov.

·   Headline FAI growth to drop due to data irregularity. FAI data are especially noisy toward the year-end and the reading for single month is almost meaningless. Overall, we believe FAI growth is on upturn entering 2013 (we estimate 22.7% growth in 2013), thanks to accommodative policy stance, supportive credit condition, improved business confidence and more expensive raw material prices.

·   Retail sales growth momentum to continue into Dec. Better home sales could also support sales growth of home appliances and construction materials. Retail sales growth could rise to 15.2% yoy in Dec from 14.9% in Nov.

·   Export growth to edge up. We expect Dec export growth to edge up to 4.5% yoy from 2.9% in Nov, while import growth is likely to accelerate to 3.0% in Dec from zero growth in Nov. Trade balance would tick up to US$19.7bn in Dec from US$19.6bn in Nov. 

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