Market Outlook - September 2023

Since the Politburo meeting in July, the Chinese administration has released a slew of measures in an attempt to boost their economy. The most significant measures were the lowered interest rates, reduced banking reserve requirement ratios and relaxed housing restrictions for homebuyers. On the monetary policy front, we believe the policies considered will likely be released gradually and in a calculated manner, thus it would take time to see a major impact to the economy. Nevertheless, we believe that the administration are headed in the right direction to support the economy.

In China’s property sector, we believe the relaxation of housing restrictions in China are significant for two main reasons. Firstly, the downpayment requirements have been reduced dramatically to 20% and 30% for first and second-time homebuyers respectively. Prior to the change, first-time homebuyers had to fork out around 30%-35% of the property value as downpayment and second-time homebuyers had to pay up to 70%. Secondly, the classification of “second-time homebuyers” has been relaxed, where single homeowners who sell their existing property to purchase a new unit will still be considered “first-time homebuyers”, rather than second-time homebuyers. As pointed out earlier, first-time homebuyers enjoy a lower downpayment, as well as having access to cheaper mortgage rates. This would make properties more affordable, while freeing up cash for consumers to spend elsewhere. Initial sales reaction was encouraging as property sales saw a triple-digit percentage rate of increase week-on-week after the relaxation. We will be monitoring incoming data over the following months to confirm the trend.

Economic data in the US consumer data continues to decelerate, where consumer-related firms report weakening discretionary spend. Headline retail sales figures in August appeared resilient but was actually boosted by higher fuel prices paid by consumers. We continue to believe that the underlying trend of decelerating discretionary spend will continue. The notable discretionary sub-sectors that have demonstrated continued resilience has been recreational and travel spend. The post-COVID reopening demand is still strong globally and marks a useful reference for China when consumer confidence and outbound travel returns to the country.

Addressing the US equity market, which have outperformed due to the technology sector. Although we remain cautious due to overextended valuations, we are cognizant that sentiment will remain high as long as analyst forecasts and quarterly company guidance remains optimistic. The semiconductor industry trend has also been positive, as bottoming signs were seen from global chip sales improving sequentially. Our belief is that these factors would continue to support the overall tech sector globally at least in the near-term.