Here’s some better news for China:
The Westpac MNI China Consumer Sentiment Indicator, hereafter the Westpac MNI China CSI, increased by 2.2pts from 112.3 in June to 114.5 in July, which is 0.3% lower than a year ago and 5.9% below the long run average. The survey was conducted whilst the equity market was in free fall to its early July trough (figure 3). Ergo, this survey can be interpreted as a referendum on the question “Is the equity market an important factor in the collective psyche of Chinese households?” The ballots are in – and the answer is a decisive “no”.
•Every one of the five components that go into the calculation of the Westpac MNI China CSI increased in July. The positive impulse on four of the five fell within the +2.4% to +2.9% range. By contrast, current business conditions (not part of the composite, but closely correlated with the PMIs & IP) lost some ground after a strong June, falling 1.8pts to be down 3.3%y/y. That cautions against a naïve extrapolation of the somewhat more positive recent trend in the official data (figure 4).
•Excluding the volatile 55-64yo cohort, the Westpac MNI China CSI was steady at 113.9. That is still up 2.0pts from the confidence level prevailing before the equity conflagration.
•Investment preferences (pg 5), as distinct from concrete responses on family finances, predictably moved into net riskaverse territory in July. However, a rising share of self-identified investors gauged equities as ‘cheap’ in July, reversing their ‘expensive’ assessment for June (pg 8). The idea that there may have been value to be found at the early July lows resulted in a resilient performance for equity related responses re the ‘wisest place for savings’. Even so, half of our respondents declined to nominate a specific sector that they felt would do well, implying that the general perception of ‘value’ was of the abstract, rather than actionable, variety. The huge losses of Monday the 27th eloquently express that pent-up selling pressure (a mix of profit taking & loss limiting), temporarily rendered latent by policy, is still a stronger force than potential bargain hunting.
•The employment indicator is the pessimistic outlier in the activity related components of the survey. The steep July fall has unwound the entire gain from the trough. Ergo, in absolute terms job security remains in short supply. Our interpretation is that weaker labour-intensive exports are impinging on the outlook for jobs (figure 6) despite firmer domestic conditions. Given the primacy of full employment in the leadership’s policy calculus, as well as the subsidiary need to sponsor equities, we remain on the alert for further monetary and fiscal easing.
•The consumers’ attitude towards real estate (pg 4) improved on a broad front in July, building on cumulative gains dating back to November 2014. Of the four major indicators, namely house price expectations; ‘good time to buy a house’; and the relevant components of ‘wisest place for savings’ and ‘motivation for saving’, three increased and the other registered a trivial decline. It is also reasonable to ascribe some of this lift to a residual benefit garnered from the reputational losses suffered by the stock market during the sampling period. We will continue to closely monitor the evolution of relative attitudes toward these two asset classes in coming months.
Property more important than shares, it seems. Full report.
