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The Chinese economy has been losing steam, something that is likely to continue throughout the next few months. Meanwhile, its retail sector has also been hit by weaker growth.
A drop in consumer spending and fears over China’s relationship with the US are the main culprits. The overall business sentiment at the end of last year was negative and this was reflected in the Hong Kong stock market.
There are, however, some encouraging signs as evidenced by an upturn in Hong Kong and China stock markets. Global events are shifting and China’s leadership has looked to take an active role in steering the country’s economic ship. Here are three things which may impact the Hong Kong stock market in the short to medium term.
1. China pledges to fuel its slowing economy
Chinese Premier Li Keqiang has pledged to take strong steps to fuel up its cooling economy and vowed that the government won’t allow the situation to slip out of hand. He has also assured citizens that he would use tools such as interest rates and the easing of reserve requirement ratios to boost the economy.
“China will stand at the reality and keep its economy stable with sound momentum for the long run,” said Premier Li, according to CGTN.
The premier said that China will refrain from monetary easing, but will offer support to the real economy. China will aim to reduce taxes and fees, streamline administrative processes, boost growth drivers and ensure that all market players enjoy a level playing field.
2. The US-China trade deal
Even as the US-China trade talks are underway, US President Donald Trump made it amply clear that he was in no hurry to conclude the trade talks and enter into a deal unless it includes protection of intellectual property.
It is a key sticking point. China has long been accused by the US of violating intellectual property laws. Enforcing those has been one of the conditions that the US wants as part of any trade deal. It has argued that China forces foreign companies that do business in the country to share their intellectual property and technical know-how as a condition of access to the sizeable market.
This intellectual property is then shared by China with its own local firms, according to US allegations. However, China has denied this.
3. Weak Industrial growth
China’s industrial production climbed 5.3% during the first two months of 2019, which is the slowest growth rate since 2002. The investment sector saw a boost as government-infused investments were increased in a bid to strengthen the Chinese economy.
The government pushed the construction of roads and railways, as well as favourable monetary policy, in order to boost the economy. Premier Li said that it was time for China to turn the blades inward to bolster job growth.
“The slowdown would be countered this time by reducing taxes to help private companies — especially small and medium-sized ones — and cutting red tape,” he said. “Large-scale tax and fee reductions mean we will be touching the government’s own interest, cutting into our own flesh.”
Uncertainty but also opportunity
The global slowdown and the US-China trade deal are likely to remain the key market drivers in the months to come.
China has vowed to give its economy a boost, which should help certain select sectors. However, sentiment will also depend on the outcome of the trade deal. Investors in the Hong Kong market should take these macro factors into account when deciding which stocks to invest in.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.