Week in review
- China Caixin Services PMI was 52.5 in April, the 16th month in expansion
- U.S. initial jobless claims ahead of consensus at 231K
- Japan household spending beats expectations, rising 1.2% m/m in March
Week ahead
- U.S. April CPI and PPI
- Eurozone CPI
- China retail sales and industrial output
Thought of the week
From the January trough, Chinese equities have rallied on the back of cheap valuations, positive GDP surprise and various policy actions. In particular, property stocks were up 30% in two weeks after the Labor Day holiday, from the April Politburo’s hints on further support to the property sector. On the demand-side, officials called for “city-specific policies” to stimulate demand. Relaxations of home purchase restrictions have started gaining traction, with more cities likely to follow. But this is likely tackling the symptom and not the root cause. Afterall, the 2016-2020 housing boom was propelled by annual price increases of 4-11%, so re-anchoring price expectations will be essential to revive demand. On the supply side, officials proposed to seek measures to “digest existing housing”. Indeed, the existing inventory in 80 key cities average at 33.3 months, meaning it will take nearly 3 years to absorb. The overcapacity issue is also worsened by structural issues such as slowing urbanization, ageing population, less marriages etc. Similar examples as Zhengzhou’s model to purchase second-hand homes and revamp into public rental housing could be welcome, to help absorb inventory and boost home transactions. The 3rd Plenary Session in July will be key to watch for further policy details to gauge how likely China can achieve a property soft landing.
Average inventory months in 80 key cities in China
Market data