Three out of five emerging ASEAN countries’ manufacturing PMI remained expanding in April, unlike the North Asia countries that are mostly contracting. Thailand’s PMI even rose to 60.4 reaching an all-time high. The overall higher PMI in emerging ASEAN countries may indicate their underlying economy is still strong, despite interest rate hikes by the central banks, as companies move some of their factories to these countries to diversify supply chain risk. Although Malaysia CPI has weakened more than expected to 3.4% YoY, Malaysia’s central bank still unexpectedly raised its benchmark interest rate by 25 bps. The emerging ASEAN equities market may be a good tool to diversify portfolio risk given the US regional bank turmoil and its possibility of entering into a recession. Investors, who would like to capture the growth of emerging ASEAN countries and diversify their portfolio risk, may have a look at our Premia Dow Jones Emerging ASEAN Titans 100 ETF (2810.HK), which targets the 100 largest and most established companies in Thailand, Malaysia, Indonesia, The Philippines and Vietnam, based on market cap, revenue, and net income, with no more than 8% and 25% in each company and country, respectively.

China's Q1 GDP grew faster-than-expected at 4.5% YoY, while retails sales in March jumped 10.6% YoY and reversed the downtrend in the past few months. Economists continue to revise up their forecasts on the country’s GDP growth for 2023. JPMorgan upgraded its full-year estimate to 6.4%, citing a notable rebound in travel-related consumption and services, front-loaded macro policy support, stronger-than-expected export sector performance, as well as earlier-than-expected bottoming out of housing activity. Citi and UBS also lifted their numbers to 6.1% and 5.7%, respectively. Fixed asset investment in Q1 was up 5.1% YoY, slightly below the consensus of 5.7% YoY, leading to speculation of rolling out stimulus to boost growth. China’s inflation environment provides room for further loosening policies to support growth, as the latest CPI dropped to 0.7% YoY in March from 1% in the prior month. For investors, China market seems to be in a Goldilocks scenario, with economy surprising on the upside whilst inflation surprised on the downside.

STAR50 index continued its bull run while the total trading volume increased to an unprecedented level of more than 50 billion CNY in one day. Information technology stocks accounted for more than 70% of the weighting and showed no sign of losing steams yet, as investors are optimistic about the industry growth from China’s strive for self-reliance in high-end technology and the application of generative AI. STAR50 index has advanced by more than 18% year-to-date and may face selling pressure in the short term. That said, the percentage of underlying members above the 200-day moving average is still at a relatively healthy level, only around 38%, far from the highest level of above 70%; hence, the index may still offer potential upside. Investors who would like to buy on any near-term dip of the STAR50 index may have a look at our Premia  China STAR50 ETF (3151.HK).

The State Bank of Vietnam (SBV) unexpectedly cut the discount rate to 3.5% from 4.5%, underlining the need to support economic growth as inflation slows. The country’s CPI increased 4.6% YoY in the first two months of 2023, similar to the level seen in December last year and close to target rate of 4.5% set by the government. The stabilized pricing trend provides the condition for the SBV to be the first to pivot to a dovish policy in Asia. It also reduced the overnight lending rate in the inter-bank market by 100bps to 6% and lowered the cap on the lending interest rates for short-term loans in some sectors to 5% from 5.5%. Market received the news quite positively, while several banks reacted promptly by reducing their deposit rates by 20-30bps. Investors generally expect that the rate cut would help ease the concerns in the property sector and boost the economy ahead.

China’s property market finally showed signs of recovery in February, with the top 100 national developers recording the first year-on-year sales growth since June 2021 and growth of construction activity also accelerated. Excluding the seasonal factor caused by the Lunar New Year, the total new home sales in the first two months of this year reached RMB 816 billion, down by 12% as compared with a decline of 30.8% seen in December last year. The pace of recovery is meaningfully stronger than market expectation and should drive positive reaction to the capital market. Analysts would monitor closely whether the strong data signals the start of a full-blown recovery or merely a temporary release of pent-up demand. With the ongoing supportive measures introduced by both central and local govenrments, it is highly probable that the strong sales data may continue and help investors look beyond developers’ dismal FY22 earnings season.

China’s CPI edged up to 2.1% YoY in January from 1.8% in the prior month, indicating a consumption recovery led by the reopening. Some investors wonder if increasing economic activities will eventually jack up the pricing pressure in China, similar to what we have seen in most economies in the past twelve months. We do not think so. First, the current inflation is still very mild with the core CPI reaching a six-month high at 1% YoY only, while PPI is even dipping into a negative territory at -0.8% YoY. Food price seems to pick up, rising 6.2% YoY last month, but pork price expansion has decelerated from the level of over 20%-30% to the latest 11.8%. Second, global commodity price has seen softening in recent months, falling close to 20% from the peak last year. With less logistics/production disruption from COVID measures and potential recession threats in the developed economies, the global demand and supply balance should be improved substantially for the rest of this year. Third, China does not face the structural inflationary pressure coming from wages as the domestic labour market is not as tight as its peers. In short, China’s CPI may step up a bit in 2023, but it is far away for the authority to make any detours in the loosening monetary policies.

Foreign investors increased their holdings of onshore yuan-denominated bonds in December, ending a ten-month losing streak and posting a net inflow of RMB 60 billion before entering 2023. Analysts explain the change is a result of the relaxation of Covid measures in the mainland, the announcement of border reopening, coupled with the narrowing of yield differentials between China and the US treasuries. The strengthening of Chinese yuan is another catalyst driving the return of international funds. The currency has appreciated against the dollar by 8% since the trough at the end of October, and the upward momentum may continue in medium-term given dollar weakening is almost inevitable. According to SAFE, foreign participation in the domestic capital market has remained active, with net purchases of onshore A-share and Chinese bonds totaling about USD 12.6 billion in the first half of January this year. Premia China Treasury and Policy Bank Bond Long Duration ETF (2817.HK) has posted a positive return of 3% year-to-date.

China is set to reopen its borders on January 8th, while the State Council has reiterated the government’s priority in promoting economic growth for 2023. Given the rising external uncertainty will pose a threat to China’s recovery, it is crucial for a timely implementation of the recently launched stimulus measures, including accelerating the construction of infrastructure projects and equipment upgrading. The officials also voiced out the importance in ensuring stable supply and stabilizing prices of daily necessities, solving the problem of the last-mile logistics during the holiday seasons, and providing the medical services and essential drugs for the needed. Investors may feel overwhelmed by the surging COVID cases in China and the corresponding disruptions in economic activities. We should understand the situation usually gets worse before it gets better, but the chaos is temporary in nature. The current deep discount of China stocks is simply not justified for the improving fundamentals in medium-term.

Chinese yuan jumped past the closely watch 7-per-dollar level for the first time since September, as China’s reopening is gaining momentum. The country moved definitively away from its long-held COVID Zero approach as the National Health Commission set out 10 new measures last week, less than a month after it relaxed the strict pandemic control with 20 guidelines for officials to minimize disruption. The latest changes include allowing home isolation and scrapping negative nucleic acid result for entering public venues. With the weakness of the greenback, improving domestic economic expectations, as well as the accumulated demand for FX settlement at the end of the year, analysts believe that the Chinese yuan would remain strong in near term. The renewed interests on China assets will also help support the currency appreciation. 

Investors are more optimistic about China’s economy as more policies have been rolled out after the 20^th National Congress, such as some supportive measures to the property sector and some relaxations on the COVID restrictions to reopen the economy. More recently, NDRC director He Lifeng, a potential candidate for succeeding Liu He, commented that the next stage of development will be centred around core technology and the digital economy and that China should lay out the infrastructure in advance to promote innovation and autonomy in those areas. Some onshore brokers think that may be a signal to ease the regulator crackdown on the internet and software industries. The gaining of investors’ interests in China’s stock market could be observed in the outstanding amount of call options in one of the largest A-shares ETFs listed in the US, FXI, which has shot up to an unprecedented level in 5 years. Premia Partners offers ETFs which have more precise exposure. Investors who would like to get exposure to the traditional sectors, such as Financials and Real Estate, may have a look at our Premia CSI Caixin China Bedrock Economy ETF. Those who would like to get exposure to the new economy sectors, such as Information Technology and Healthcare, may have a look at our Premia CSI Caixin China New Economy ETF.