Economy: soft landing and light policy support. In terms of Chinese growth, we see the rate continuing to slow. Chinese GDP growth rose 6.0% in the third quarter of 2019 (Chinese authorities forecasted a range of 6.0%-6.5% YoY), the slowest pace since the early 1990s. Moving into 2020, we do expect that the new growth target will be set around 6.0%, if not lower, at between 5.5% and 6.0%, and our current forecast is confirmed at 5.8% YoY.Exports unsurprisingly have been weak, private capex has slowed notably, and public infrastructure has not picked up as expected. Going forward, we expect public infrastructure capex to accelerate, and the tight real estate policy stance to potentially moderate. Chinese policy mix remains stimulative, though in a very limited way so far and far away from the massive stimulus implemented in recent years.
Investment implications. Overall, we are moderately constructive on the China’s equity market. We see valuations as being supportive, though the earnings growth outlook appears muted. We maintain a preference for A-shares equities that are more exposed to the domestic Chinese economy that benefit from the MSCI inclusion process. We also see opportunities in supply chain shifts (Taiwanese and Chinese tech) and in domestic brands offering increasingly more competitive products to international brands.
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