GGRAsia – China Politburo meeting key for any policy shift: UBS

China Politburo meeting key for any policy shift: UBS

Jun 07, 2023 Newsdesk Latest News, Macau, Rest of Asia, Top of the deck

Chinese government policies relevant to investors and consumers might “turn more positive” if the country’s economic-growth momentum “continues to weaken”, says a note from investment bank UBS AG.

The institution said examples of indicators of concern for the central authorities might include “disappointing” levels of consumption or of activity in key markets in the China property sector (pictured, Shanghai), and if exports were to “decline sharply”.

“We expect policies to turn more positive by boosting infrastructure investment, rolling out some targeted consumption support, and easing property policies further,” stated the note, led by the institution’s chief China economist, Tao Wang.

The note previewed a weaker year-on-year growth for China’s economy in May. “Our UBS China activity tracker shows soft sequential growth momentum, while the low base effect turned less favourable in May,” it said.

“With a fading (but still favourable) low-base effect, we expect year-on-year growth of most economic activities in May to have slowed from April to nevertheless decent readings,” stated the memo published on Wednesday.

The strength of headline year-on-year growth in the second quarter “may limit the scope of policy stimulus in the near term,” said the bank. But if China’s economy growth momentum “continues to weaken”, more policy easing ahead is “likely”, it added.

“The upcoming July Politburo meeting is the key time window to watch for policy tone change, while regular State Council meetings in the next two/three months may deliver some details,” said the UBS memo.

The possibility of a fresh fiscal stimulus package by authorities in mainland China could help push up the valuations of Macau casino stocks, suggested a recent note from U.S.-based CBRE Securities LLC.

“In the current environment, confidence in economic conditions will likely continue to be a greater driver of Macau gaming equity price performance rather than fundamentals,” stated the brokerage.

CBRE added: “With that in mind, any economic stimulus in China would be a meaningful catalyst for Macau casino stocks, which we expect would outperform the Hang Seng [Index in Hong Kong] on the way back up.”