The worst could be over for China

Chinese equities have fallen this year, but the worst could be behind us

The People's Bank of China (PBOC) supply side reforms on Asset Management Products (AMPs) & Wealth Management Products (WMPs) which are considered the “shadow banking” sector have been dampened with amendments to The Guidance on Asset Management Business of Financial Institutions (The Guidance). This should lead to an increase in China’s Total Social Financing (TSF) which is a broad measure of liquidity which The Guidance had a partial effect on the figures close to halving from April to May.

At the same time the original AMPs/WMPs reform came through the US-Sino trade war kicked off, these factors lead to a sell-off in Chinese equities. Close to US$1.6 trillion in value has been wiped off Chinese equities since their peak in January, a fall of ~20% putting it in bear market territory.

The ministry of commerce also recently announced that they will resume talks with the US to try and resolve the current trade war.

Like the trade war, echoing US counter policies, the politburo are now assessing income tax amendments to try and stimulate the economy particularly towards middle income earners. These include tax deductions on mortgage loans and medical expenses.

The announced tax cuts come into effect in January, aligned with the recent easing on AMPs/WMPs, the recent RRR cuts and the next step in the MSCI inclusion in September could see volatility reduce and green return to the CSI 300 chart.

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