As of now, global equity market prices have already recovered from April’s decline on the back of cooling US economic data and significant share buyback programs being announced. We expect this erratic market behaviour to continue until the timing of interest rate cuts becomes certain as investors eagerly price in any possibility of monetary easing. Additionally, with US elections closing in, there will likely be additional volatility in the coming months due to uncertainty on government policy adoption.
China has taken more direct actions to restore confidence in their property sector. These included complete removal on home-buying restrictions in Xi’an, Hangzhou and Chengdu and further relaxation of property buying measures in other major cities. More significantly, the administration has setup an initial 300 billion RMB facility for local governments to acquire excess property inventory and develop them into affordable housing. This would further alleviate liquidity stress on property developers. These actions were greatly supported by market participants as shown by major inflows and sharp price appreciations in their equity markets. The facility is encouraging and will likely need to be expanded for it to have a meaningful impact on the broad property sector. If expanded significantly, we believe that property prices should form a bottom and subsequently, consumer confidence should return. On top of that, the Chinese government has targeted large scale equipment renewals and trade-ins of durable consumer goods to boost private consumption growth, and this could spread over several years. Other monetary policy easing including removing the floor on mortgage rates and lowering of downpayment rates have been announced.
With Q1 earnings season coming to a close, we observe a mixed outcome for large US firms. Many consumer discretionary firms continue to report further slowdowns in spending and an increasingly selective consumer. Consumer companies with international exposure tended to comment on a slower-than-expected recovery from Chinese consumers. On the other hand, major US technology firms maintained growth, with some showcasing rising growth owing to AI adoption. China paints a similar story where technology firms showcase growth, while consumer spending was lukewarm in most segments. The difference is that China’s consumer spending has been on an upward trajectory while US is the converse.
With major economies at potential turning points, we are aiming to be selective within US and China given our current exposures. Despite the weak economic data in Japan, we remain positive on the corporate governance restructuring process as it would benefit shareholder returns over the long-term.