China’s low GDP goal provides Beijing room to deal with market dangers

An investor looks at an electronic board with stock information in a brokerage house in Nanjing, Jiangsu Province, China.

Reuters

BEIJING – Shares in mainland China have fallen in recent days as authorities set a relatively low GDP target and signaled a move away from measures designed to keep the economy alive in the wake of the coronavirus pandemic.

The Shanghai Composite is down more than 5% in the past five trading days. According to Wind Information, losses this week have accelerated to their lowest level since December. Other mainland stock indices like the Star 50, which tracks big names on the Technology Stock Board, and the CSI 300 have fallen nearly 8% or more in the past five trading days.

The indices rose on Wednesday after US markets recovered from a recent sell-off overnight.

After the sharp gains in mainland China over the past six months, investors are focusing on two things, Tai Hui, chief Asian market strategist at JPMorgan Asset Management, said on Wednesday.

One of them is concerns about a withdrawal of supportive fiscal and monetary policies based on comments from China’s annual parliamentary session. The other is the sell-off in the US market, especially high-soaring technology stocks, he said.

Top People’s Bank of China and Banking Supervision officials warned of financial market risks this month. Your comments stand alongside China’s biggest political event of the year, the “Two Sessions” parliamentary session.

China sets “very conservative” GDP target

At the meeting, Chinese Prime Minister Li Keqiang announced on Friday that the country would aim for GDP growth of over 6% for the year, which many economists estimate is at the low end. Li said no new bonds would be issued to respond to the pandemic and that deficit and inflation targets would be lower than last year.

In a report on Monday, Citi analysts called the GDP growth target “very conservative” and said it would ease pressure on policymakers to grow rapidly and allow them to take tighter measures to contain the risks in stocks and shares seize the real estate market.

As a result, they expect authorities to limit the growth in lending and the potential amount of capital that could be used to buy stocks. Citi analysts estimate the CSI 300 could fall 10% from its level on Friday March 5th.

The CSI 300 fell by around 4% compared to the close of trading on Friday from Wednesday lunchtime.

Economists in China have been watching US markets closely, where government stimulus and a rise in the US 10-year Treasury yield have raised some concerns about the risk of “imported inflation”. So far, domestic measures for such price increases have remained cautious. China saw its consumer price index fall 0.2% year over year in February and its producer price index rose 1.7%.

Long term investment themes

Instead, given the recent sell-off and details of the country’s five-year development plan beginning this year, market strategists are pointing to longer-term opportunities in Chinese stocks.

The development roadmap, known as the 14th Five-Year Plan, aims to improve China’s technological capabilities, enhance the role of consumption in stimulating economic growth, and address issues such as China’s aging population.

Xuan Wei, chief strategist of China Asset Management, said in a note that he is optimistic about investment opportunities in technology, consumer trends and medicine in the medium to long term.

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