2025-05-26 12:01

Key takeaways The RBA delivered a dovish 25bp cut in May, and a 50bp move was discussed. The AUD weakened after the decision… …but we continue to see scope for a stronger AUD. On 20 May, the Reserve Bank of Australia (RBA) lowered its key policy rate by 25bp to 3.85%, in line with market expectations. This was the second rate cut in the current easing cycle. The RBA Governor, Michele Bullock said after a short discussion about whether to remain on hold, the conversation moved swiftly to the thought of a 50bp or 25bp cut (Bloomberg, 20 May 2025). There were broad-based negative revisions to the RBA’s quarterly forecasts. The RBA now forecasts GDP growth of 2.1% y-o-y in 4Q25 (previously 2.4%) and 2.2% in 4Q26 (previously 2.3%), an unemployment rate of 4.3% in 4Q25 and 4Q26 (previously 4.2%), and trimmed mean inflation of 2.6% in 4Q25 and 4Q26 (previously 2.7%), assuming two more 25bp cuts by end-2025 and one more cut by mid-2026. Rate markets now see the RBA policy rate to end the year at c3.1%, lower than c3.3% before the decision (Bloomberg, 22 May 2025). The AUD edged lower against the USD after the announcement before recovering its loss. Nevertheless, this is a dent but not an end to our bullish AUD view. Externally, trade tensions are de-escalating. This should alleviate the pressure on the regional growth outlook to a certain extent, improve overall risk sentiment (which we use Vanguard FTSE All World excluding US ETF as a proxy), and benefit the AUD (Chart 1). Domestically, the incumbent centre-left Australian Labor Party, led by Prime Minister Anthony Albanese, won the Federal election on 3 May and a second term, with an increased majority of the vote. The current government has ample room and clear willingness to deliver fiscal support if domestic conditions warrant, as the net national debt is low at 19.9% of GDP in 2024-25 (according to the budget 2025-26 released on 25 March). Source: Bloomberg, HSBC Source: Bloomberg, HSBC Positioning wise, AUD-USD has traded at a discount to its key drivers since the US election, in line with still sizable net short positions (Chart 2). Positioning readjustment, in addition to a potential increase in the FX hedge ratio by Superannuation Funds could also be positive for the AUD. All things considered; the risk-reward balance may move in favour of the AUD in the months ahead. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/aud-beyond-the-rbas-dovish-cut/

2025-05-26 07:04

Key takeaways US tariffs policy has been front of mind for markets in recent weeks. But with a meaningful softening of the US administration’s position of late, investors’ focus now looks to be shifting to fiscal policy. When Mario Draghi published his blueprint to revive the EU economy last year, he said the bloc needed sharp increases in public and private investment. So, when Germany – with its long record of fiscal prudence – announced plans for massive spending on infrastructure and defence six months later, no wonder Draghi called it a “game changer”. Last week, a major Chinese battery maker pulled off the biggest share sale in the world this year, with a multi-billion dollar secondary listing in Hong Kong. The move could bode well for other China-quoted firms hoping to attract funding from both domestic and foreign investors. Chart of the week – Does the end of US exceptionalism persist? A dominant theme in the minds of investors this year has been the prospect of an end to US exceptionalism. The previous week’s US credit rating downgrade by Moody’s – while not exactly unexpected – provided a reminder that the US fiscal situation has become untenable. But when we talk about an end to exceptionalism, what has really changed? Over the past decade, investors have enjoyed three types of US exceptionalism. The first is the country’s exceptional GDP growth, especially within the context of the G10 (although a lot of that has been more about fiscal spending and immigration, than it has about productivity). Second is its exceptional stocks. Returns have been boosted by super-normal profits, the Magnificent Seven tech mega-caps, and a big re-rating of the market multiple. Thirdly, there has been the exceptional US dollar. The USD has boosted investor returns and sucked up global capital and investor attention. It also provided portfolio hedging services to global investors – offering strength in times of both US economic outperformance and weak global growth (the “dollar smile”). The critical question now is the extent to which these elements survive? For a start, macro growth is cooling amid policy uncertainty, and that could persist as a dampening effect on US activity for a while. Meanwhile, the premium growth rates are in Asia and Frontier economies. In stocks, the US market cap as a percentage of global stock markets looks to have made a top. And profits growth is expected to be as fast in China as in the US over the next 12 months. As for the USD, it remains over-valued versus most currencies, and many global investors are now exploring hedging FX for US stock exposures – which is a material shift in psychology. The forces making the US look less exceptional could stick around for a while. Market Spotlight Retail therapy Rollercoaster US stock market volatility in the early months of 2025 has given way to a pronounced rally in May. But with fund manager surveys pointing to some unusually bearish institutional positioning in US stocks, it seems that something else has been driving recent moves. According to reported flows data, US stock prices since late April have been supported in part by a pick-up in buying among retail investors. In a repeat of a theme that’s been a fixture in markets for the past decade – particularly in the rebound after the Covid crash of 2020 – retail has been acting like a stabilising force and “buying the dip”. The latest leg-up in prices followed the better-than-expected deal in early May between the US and China to cut tariffs for 90 days. But while developments like that help explain the shift in investors’ perception of risk, there’s potential for it to drive a disconnect between market performance and still ultra-high policy uncertainty. While retail investors got the rally started, the momentum could fade quickly if smart money institutions fail to join in – potentially causing further volatility, with markets continuing to spin around. The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management, Bloomberg. Data as at 7.30am UK time 23 May 2025. Lens on… Beautiful bill, ugly truths US tariffs policy has been front of mind for markets in recent weeks. But with a meaningful softening of the US administration’s position of late, investors’ focus now looks to be shifting to fiscal policy. Moody’s decision to strip the US of its last remaining “triple A” rating is a timely reminder of the challenges facing President Trump’s fiscal package as it moves through Congress. The one-notch downgrade reflected the well-known rising debt burden and widening deficit, which Moody’s expects to be exacerbated by the extension of the 2017 Tax Cuts and Jobs Act (TCJA), the centrepiece of the administration’s fiscal policy. While the details of the “One, big, beautiful bill” are yet to be finalised, it is likely to include fiscal easing over and above the extension of the TCJA. However, Washington will have one eye on the bond market and the USD – the 30-year yield breached 5% last week while the USD is softening again. Meanwhile, although tax cuts may be seen as positive for the stock market, this may be offset by a renewed rise in yields. So, a key question for investors is do these ugly truths force the White House to pare back its ambitions? Go with the euro income flow When Mario Draghi published his blueprint to revive the EU economy last year, he said the bloc needed sharp increases in public and private investment. So, when Germany – with its long record of fiscal prudence – announced plans for massive spending on infrastructure and defence six months later, no wonder Draghi called it a “game changer”. German fiscal expansion, together with expectations of further ECB rate cuts, have improved the prospects for the eurozone economy. Some credit research teams suggest one spillover effect could be a positive change in sentiment in European credit markets. European corporate credit fundamentals are healthy, with steady gross leverage and resilient profitability. Coverage ratios (measuring the ability of firms to service debts) have dipped, but many have strong cash buffers. The asset class should also be resilient to tariffs, with only a limited proportion of both IG and HY markets made up of US registered companies, while direct sales exposure to tariffs is also limited. One note of caution is that a lot of this good news is in the price – spread valuations remain tight. But high all-in yields are compelling for investors looking for steady income flows. A market catalyst? Last week, a major Chinese battery maker pulled off the biggest share sale in the world this year, with a multi-billion dollar secondary listing in Hong Kong. The move could bode well for other China-quoted firms hoping to attract funding from both domestic and foreign investors. It comes amid signs of continuing positive sentiment towards Chinese stocks this year, especially in technology-related sectors, with investors seeking to broaden their international exposure beyond the US. Growing global appetite for Chinese stocks coincides with a recent pick-up in earnings upgrades. That’s been driven by cooling trade tensions between the US and China, and Q1-2025 profits numbers from Chinese firms that are largely in line with market consensus, delivering decent year-on-year growth. In the offshore market, technology industries are the profit engine, with AI still expanding at a clip. In the onshore market，the strongest growth has been in consumption-sensitive sectors like consumer discretionary and staples, in part because of ongoing policy support and the expectation that policymakers will respond (with a “put”) if headwinds worsen. Put together, these latest developments could be a catalyst for further positive performance in Chinese stocks. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 23 May 2025 Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 23 May 2025. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Market review Risk sentiment pulled back last week amid growing worries about US debt sustainability, following the US House of Representatives’ passage of a bill extending the 2017 tax cuts last week and Moody’s downgrade of the US credit rating the previous week. The US dollar weakened while longer-dated US Treasury yields rose, with the 30-year yields breaching 5.00%. UK gilt yields also rallied, and most European yields rose too, albeit to a lesser extent. US HY credit spreads widened after weeks of narrowing, while IG spreads remained stable. In equities, US markets saw broad-based losses, while the Euro STOXX50 were largely unchanged. The DAX rose, whereas the CAC40 edged lower. Japan's Nikkei 225 declined amid a stronger yen, and other Asian equities were mixed: Hong Kong’s Hang Seng and mainland China’s Shanghai Composite gained, while South Korea's Kospi and India's Sensex fell. In commodities, oil prices dropped amid investor concerns over a potential increase in OPEC+ production. Gold advanced, and Crypto extended their weekly rallies. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/does-the-end-of-us-exceptionalism-persist/

2025-05-23 12:02

Key takeaways It is in periods of rising integration with the world that India has grown its fastest. Financial integration has outpaced trade integration, creating a divergence between (high-end) consumption and (household) investment growth. An opportunity to ramp up trade integration and grow faster is knocking at the door. There is a general sense that India is mostly a domestic demand-driven economy. We disagree. We find that India has grown at its fastest pace in periods of rising global integration with the world. We use the rolling correlation between India and world GDPgrowth as a measure of global integration, and find that the 2000-2010 decade was a period of falling import tariffs, as well as rising global integration, export share, and GDP growth. In the next decade, 2010-2020, all of this changed. Tariffs were raised, and global integration, export share and GDP growth fell. Encouragingly, the few years following the pandemic reflect a rise in global integration once again, though so far it remains slightly one-sided –more financial integration, less trade integration. We drill down into GDP sectors and find that consumption is most integrated with world growth (95%), followed by investment (70%), and then exports (35%). Surprising, as one might imagine exports to be most globally aligned. One reason could be that India’s global connections are stronger in finance (Indian equity markets have become far more aligned with global equities over the last two decades), and this impacts consumption. But integration remains weaker in trade, which influences export and investment. Within investment, we find corporate investment is more globally integrated, something we notice across countries. Meanwhile, integration is lower for household investment, which includes both real estate and investment by small firms. Within consumption, discretionary consumption is more globally interlinked than essentials. If indeed financial integration has been strong, it is likely to support high-end consumers who tend to be better invested in financial markets. Within exports, weak integration has been led by more labour-intensive mid-tech exports (like textiles and toys), which have been sluggish for a decade. Bringing all sectors together, we have two distinct stories unfolding. Stronger financial integration: Those who have been able to enjoy the gains of financial integration, have seen incomes and discretionary consumption rise. Many of these individuals are associated with large firms (where global capex is globally correlated) or new sectors (e.g. rapidly rising professional services exports). Weaker trade integration: On the other hand, lower global integration in mid-tech exports explains weaker growth and incomes, and why individuals in these sectors are largely focused on consumption of essentials, without much surplus for investment. A corollary here would be that steps which raise mid-tech labour-intensive exports can boost India’s trade interlinkages, mass consumption, investment, and India’s GDP growth. An opportunity to grow exports as supply chains are getting redrawn is knocking at the door. More open, more benefits There is a general sense that India is a relatively inward-looking economy. After all, agriculture makes up c18% of GDP and depends more on weather patterns than international demand. And India is more domestic demand-driven, compared to some export-led Asian economies. Having said that, we find that India has grown at its fastest pace in periods of rising global integration with the world. After all, a whole new market opens up when a country is open to it. We use the rolling correlation between India and world growth as a measure of global integration in this report, and find that the 2000-2010 decade was particularly striking as a period of rising global integration and strong India GDP growth (c8% per year, see exhibit 1). This is the time India was slashing import tariffs and integrating further into global trade, resulting in higher export growth, global export share and GDP growth. In the next decade, 2010-2020, India began to raise import tariffs. This period saw a fall in export growth, global export share and GDP growth. We also note that during the last few years, i.e. those following the pandemic, have seen a rise back up in global integration and GDP growth. As we will discuss later in the report, India is making efforts to integrate more with the global economy. But how large and lasting a growth impact, will depend on continued efforts to integrate. One may argue that higher integration exposes a country to global volatility, which may be negative for growth. We look into this carefully through a VAR regression analysis, and find that the positive impact of being more integrated with the world is higher and longer lasting than the negative impact of being exposed to global volatility (see exhibits 4 and 5). All said, deeper interlinkages with the world have led to higher growth over time, more than offsetting the negative impact of rise in volatility. How integrated are the various sectors? Next, we turn our attention to sectoral flavours, because they shed light on the nature of integration with the world and its impact back home. We break down GDP on the expenditure side into consumption, investment and exports, and find some interesting, and even surprising, takeaways. Comparing investment, consumption and export trends. In the pecking order, consumption is most integrated with world growth, followed by investment and then exports (see exhibit 6). This is rather surprising as one might imagine exports to be most correlated with global growth. As we explore more closely later, one reason could be that India’s linkages with the world arestrong on the financial integration side, which impacts consumption, but more limited on the trade side, which influences exports and thereby, investment. Investment details. India’s investment growth has a strong c70% correlation with world growth (see exhibit 7). We break down investment growth into several parts – public, private corporate and household investment. What stands out is the rather divergent trend in corporate versus household investment. Corporate investment has a higher correlation (of 75%) with world growth compared to household investment (of 40%). The global interlinkages of corporate investment did not really fall in the 2010-2020 period (barring the pandemic years, see exhibit 8). This is not surprising. We find that corporate capex globally moves in unison, driven by common factors (for instance,risk sentiment impacting FDI flows). On the other hand, household investment has a smaller correlation (of 40%) with world growth (see exhibit 9). It is importantto note here that household investment in India includes not just real estate and housing, but also investment by small firms. Consumption. Consumption has an even higher correlation with world growth than investment. It fell in the 2010-2020 period, but has risen since. In fact, the correlation has risen to 100%, which is above previous highs. We break down private consumption into two parts – discretionary and essentials (see exhibits 10 and 11). Between these, discretionary consumption has a much higher correlation with world growth (of almost 100%), while essentials have a lower correlation (of 70%). This is understandable. If indeed financial integration has been strong (as we mention above and explore further later in the report), it is likely to have impacted incomes at the top of the pyramid. High-end consumers, who are typically high income earners, tend to be better integrated with (or invested in) financial markets. Meanwhile, those associated more with sectors like agriculture and small firms, where incomes may not be as high, are focused on consuming essentials. This consumption group may not have much investible surplus, and therefore not as strongly integrated with financial markets. Exports. We probe the surprisingly low correlation of export growth and global growth a bit more. The fall in correlation was pronounced in the middle of the 2010-2020 decade when import tariff rates were being raised and export growth was falling (see exhibit 12). We divide exports into the more capital-intensive high-tech and the more labour-intensive mid-tech exports. We find that growth in high-tech exports has far surpassed growth in mid-tech exports (see exhibit 13). In fact, the latter has been rather sluggish for a decade. One can thereby deduce that,led mainly by sluggish mid-tech exports, India’s trade integration with the world has been weak. Bringing it all together So now we have two sets of results: Stronger financial integration. Rising equity market correlation (of the S&P500 and SENSEX indices, see exhibit 14) and the rise in international financial inflows into India show that India has become a lot more financially integrated with the world over time. Those who have been able to enjoy the gains of financial integration have seen incomes and discretionary consumption rise. This even explains the strong correlation between global growth and discretionary consumption. Many of these individuals could well be associated with large firms in the formal sector, where global capex tends to be highly correlated globally. These individuals could also be associated with high-tech exports, such as India’s rapidly rising professional services exports. Weaker trade integration. On the other hand, as discussed above, trade integration has been relatively weaker, led particularly by mid-tech exports. About 45% of India’s goods exports come from small firms. Lower global integration here, then, explains lower mid-tech export growth, and lower incomes in this category. Lower incomes go on to explain why this group is focused a lot more on consumption of essentials, and do not have much surplus to trigger investment. This, then, explains why integration of essential consumption and household investment growth with world growth remains low. A corollary here would be that steps which raise mid-tech exports and India’s trade integration with the world can boost consumption, and particularly investment. But what needs to go right? An opportunity comes knocking Elevated import tariffs have hurt India’s export potential over the last decade, and mid-tech exports, which are also more labour intensive, have been hurt most. In fact, we believe India was not able to fully seize the opportunities in the first Trump presidency, when supply chains were rejigged following the imposition of new and elevated tariffs. Other blocks like ASEAN made more progress in raising their global export share (see exhibit 15). Vietnam, in particular, made substantial gains in both mid-tech and high-tech sector exports. If supply chains are rejigged again during the second Trump administration, India may have a chance to grow. If the sectors where Vietnam made the most progress during the first Trump administration reflect where global opportunities from supply rejigging lie, note that India is already a player in these sectors. India’s exports in sectors like electronics, apparel, furniture, and footwear are 15-40% of Vietnam’s exports (see exhibit 16). This shows that India’s footprint is large enough to show capability, but with room to grow. After all, wage competitiveness is still on India’s side (see exhibit 17). Incidentally, China’s excess capacity is not as large in these mid-tech sectors (see exhibit 18). Space for another manufacturing economy may well be there. But first,India needs to make changes to do it right this time around. External reforms have begun, but must run deep Potential US tariffs on Indian exports may have become a catalyst for external sector reforms. In fact, India has recently taken a few steps which signal that it is becoming more ‘open for business’: Lowering import tariffs: In the February budget, import tariffs were cut for items like high-end motorcycles, smartphone components, solar cells and chemicals. Recent news articles show that the government plans to cut tariffs for several other categories of goods such as automobiles, agricultural products, chemicals, pharmaceuticals and medical devices. Opening up to regional FDI: The economic survey of July 2024, which is an important policy document, made a case for India to become more open to regional FDI, in particular from China. However, this has not culminated in higher FDI inflows yet. Fast tracking bilateral trade deals: India plans to sign a bilateral trade agreement with the USin 2025, with the first phase expected to be finalised by July. Reports suggest that it plans to buy more oil and defence equipment from the US and increase cooperation in nuclear energy. All of these would likely reduce India’s trade surplus with the US. It has also shown signs of wanting to fast-track its trade agreement discussions with other regions such as the EU. The finalisation of the India-UK trade deal on 6 May, following more than three years of negotiation, signals to us a sense of urgency in concluding trade agreements quickly. This may provide some tailwind for other negotiations too. Making the INR more flexible: A flexible rupee does not just act as a shock absorber during times of external volatility, but also helps make exports competitive, and give manufacturers the confidence to export from India. After a period of REER appreciation, the rupee has mean reverted over the last few months. These are a good start. But for long lasting impact from greater integration with the world, and stronger growth and more jobs, these reforms will have to run deep. Key forecasts https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/challenging-myths-seeking-opportunities/

2025-05-22 12:02

Building a resilient portfolio for an uncertain era The past few months have given investors plenty to ponder, with US trade tariffs causing elevated volatility in multiple asset classes around the world. Traditional safe-haven assets, such as Treasuries and the US dollar, were no exception. What’s more, we expect tariffs to remain with us for some time, as they’re a negotiating tool to obtain concessions from other countries and provide the US administration with a way to finance planned tax cuts. So, economists and businesses have been trying to assess what the impact will be on growth, earnings and inflation. That’s not an easy task, as the tariff levels have been changing and could still change further. That said, the 90-day tariff reprieve (now also including China) offers temporary relief, and there’s hope with the recent US-UK trade deal that other countries will follow. What does this mean for investors? The recent US-China negotiations, albeit a temporary reprieve, have rekindled market optimism. US equities have regained the lost ground since the 2 April Liberation Day announcements, supported by stronger-than-expected Q1 corporate earnings and benign April inflation data. This all seems to point to a better outlook. As a result, we’ve moved global and US equities back to an overweight position. This swift change in view is driven mainly by a U-turn in trade policy, which has reduced recession risks. However, the dust has yet to settle on this period of geopolitical uncertainty. So, we stick to our basic, yet important, rule of diversification and look to deepen it further. We expect other nations to continue or even intensify their trade with non-US trading partners. This means that investors will also want to diversify and capture opportunities beyond the US. Asia is in better shape for various reasons. Notably, its domestic resilience and structural growth opportunities are evident, and clusters of manufacturing expertise in China and Asia can’t easily be broken up. High US tariffs on some Southeast Asian markets will also benefit India’s manufacturing sector, while Singapore stands out as an outlier in the current trade tensions among other Asian markets. Structural trends remain intact From a fundamental perspective, we still have faith in the US’s long-term strengths, particularly in areas like AI adoption and innovation, even though they’ve been overshadowed by tariff-related concerns. In fact, we continue to see examples of AI revolutionising business models or boosting efficiency around the world. If Technology and Communications are beneficiaries of the AI momentum, then the industrials sector is also a winner across all regions, driven by high demand for digital infrastructure and the US administration’s focus on re-industrialization and the onshoring of jobs. Renewable energy can also benefit as AI adoption has a high reliance on electricity. Diversification in focus amid slow but positive growth and gradual easing At this juncture, when tariff negotiations are still up in the air, we continue to use quality bonds with a medium-to-long duration, gold and less-correlated assets to solidify diversification. We also leverage active management to adjust portfolio allocations as and when needed. For individual investors, these objectives can be achieved through multi-asset strategies with exposure to various asset classes, markets and currencies. As always, this report presents our four investment themes and brings more value to our readers by delving into specific topics. This quarter, to help you position your portfolios, we look at the potential scenarios for US tariffs and their investment implications, as well as how Asia can ride on AI-driven opportunities. We hope these insights will help you navigate this period of uncertainty and offer a clearer picture for the months ahead. Best wishes for a smooth investment journey. https://www.hsbc.com.my/wealth/insights/market-outlook/investment-outlook/building-a-resilient-portfolio-for-an-uncertain-era/

2025-05-21 12:01

Key takeaways The quick US-China agreement and the US-UK trade deal have substantially reduced downside risks. As earnings growth expectations have been lowered and valuations are more fairly valued, we think the rotation away from US assets will ease. Coupled with AI-led innovation and other structural opportunities, we move global and US equities, as well as Technology, back to overweight while cutting Europe ex-UK equities to neutral. We continue to stay diversified through multi-asset strategies and gold to manage downside risks. The correlation between stocks and bonds has fallen back into negative territory, reinforcing the diversification benefits of bonds. We prefer UK gilts due to their attractive real yields, and GBP/EUR investment grade credit. We expect the Fed to cut rates three more times this year, while the Bank of England is signalling more rate cuts than the market expects. Despite a less daunting tariff outlook, we expect the upcoming trade talks between the US and China to be lengthy and Chinese policymakers to continue ramping up policy support to boost local demand. We remain overweight on Chinese equities with a focus on AI enablers and adopters across industries and expect the market rally to broaden out to the consumption, financial and industrial sectors. Both India and Singapore stand out as relative trade safe havens. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/reduced-trade-tensions-lift-optimism-for-us-stocks/

2025-05-20 12:01

Key takeaways China officials announced a raft of policy measures during a recent press conference, backing their pro-growth stance… …including interest rate cuts, support for Central Huijin as a stabilisation fund and policies to bolster the real economy. US-China trade talks have ignited hopes for a de-escalation and, if successful, present upside risks for economic growth. China data review (April 2025) Retail sales grew at 5.1% y-o-y in April, helped by expanded funding for tradein programmes (RMB162bn year-to-date versus RMB150bn last year). Products covered by the scheme saw double-digit growth in April, including communication appliances (19.9% y-o-y) and household appliances (38.8%). For autos, sales volume continued to be strong, up 15% y-o-y, while electric vehicles (EVs) were up 34%, based on CPCA data. Industrial production was up 6.1% y-o-y in April, reflecting the stronger-thanexpected export growth, which was driven by trade restructuring. Policy incentives to promote large-scale equipment upgrading (RMB200bn of funding support) and cultivate technology and innovation also helped boost production. However, some labour-intensive sectors, such as textiles (2.9% y-o-y), may have been hit due to the increased external uncertainties. The property sector remained a key drag on the economy in April, which saw deeper falls in investment (down 11.3% y-o-y), primary home sales (down 2.4% y-o-y in volume terms) and home prices (second hand home prices down 0.4% m-o-m). The government may need to step up support to help reverse the slump, and it still has ample tools to do so. Inflation prints hinted at tepid consumer prices as CPI fell 0.1% y-o-y in April, and rising downward producer price pressures, with PPI down 2.7% y-o-y. Volatile items, such as pork, remained drags to headline CPI, while core CPI continued to receive support from consumption policies. Despite robust export growth in April, its momentum may fade in the coming months, so domestic demand will need to pick up the slack, while helping to stabilise prices. Exports rose 8.1% y-o-y in April, despite prohibitive US tariffs on Chinese goods being imposed at the start of the month. This was helped by a low base and exports to third countries (especially ASEAN), on accelerated trade restructuring, related front-loading and rerouting of direct US-China shipments. Meanwhile, imports fell 0.2% y-o-y but were ahead of market expectations, on improved processing imports, likely related to exports to third countries. China easing: a raft of stimulus Following the pro-growth stance denoted in the April Politburo meeting, the heads of the People’s Bank of China (PBoC), the National Financial Regulatory Administration (NFRA) and the China Securities Regulatory Commission (CSRC) held a press conference on 7 May to roll out financial market stabilisation measures (Table 1). The package, however, did not include direct fiscal support for domestic consumption, in line with our view that China will focus on implementing various fiscal easing already announced during the National People’s Congress in early March. Monetary easing Numerous monetary easing measures were rolled out, including lowering the policy rate by 10bp, structural relending rates by 25bp (from 1.75% to 1.5%) and the Pledged Supplementary Lending rate by 25bp (from 2.25% to 2%). Liquidity injections included an outright 50bp cut in the required reserve ratio (equivalent to a RMB1trn liquidity injection) and creation of several new monetary policy tools. If fully utilised, the new tools add an additional RMB2.1trn of liquidity to the real economy. We think more easing will follow, likely through additional rate cuts in the second half of the year and the PBoC resuming treasury purchases from the secondary market. Stock market stabilisation The CSRC emphasised that market stability is critical to economic growth and the interests of investors, while pledging support for Central Huijin to play the important role as a market stabiliser. There has been a substantial change in policy stance towards the stock market since 24 September 2024, with ‘stock market (and housing) stabilisation’ written into this year’s target. Indeed, Central Huijin announced purchases of A-share ETFs in early April when the trade escalations shocked the market (Securities Times, 8 April); however, this is the first time the CSRC has referred to it as the quasi-market stabilisation fund. The NFRA also announced that it would lower risk factors for insurance companies to increase equity exposure, encouraging more ‘patient capital’ to make stock investments. Supporting the real economy The three ministries consistently pledged support for the real economy. The PBoC’s new monetary tools are aimed at directing new funds towards technology innovation, expanding elderly care and supporting small businesses. The CSRC is prioritising reforms to provide capital support for technology innovation, while enhancing investor protection to increase market reliability. And the NFRA is focusing on financing support for real estate developers, exporters and importers, and adapting regulations to help industrial transformation and upgrading. Reviving consumption Though not a focus of the press conference, we think reviving consumption remains the primary policy target this year. The Labour Day holiday showed improving activity, but we stay cautious as outcomes of tariff negotiations remain highly uncertain, while negative impacts may just be starting to unfold. A mix of both near-term measures, like trade-in programmes and services consumption subsidies, as well as structural measures, such as improved social safety net coverage, pension reforms and stabilisation of the housing sector, will likely be rolled out. US-China trade talks China and the US announced a tentative trade truce in Geneva on 12 May, agreeing to suspend new tariffs for 90 days and scale back existing tariffs (China to face 30%, the US to face 10%). Both sides agreed to establish a ‘consultation mechanism for trade and economic issues’, laying the groundwork for future high-level dialogue. The pullback will be most welcomed by businesses on both sides that were starting to feel the pinch from reciprocal tariffs and presents upside risks to economic growth. Source: SCIO, HSBC Source: LSEG Eikon *Past performance is not an indication of future returns Source: LSEG Eikon. As of 16 May 2025, market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/china-easing-a-raft-of-stimulus/