China Market News: Continued Drop in Private Investment Concerns the Economy

Talking points:

• China’s weak private investment added bearish momentum to the economy.
• State-owned enterprises reported obstacles, which could drag down equity prices.
• Trading volume through Stock Connects increased, good news for Chinese shares.

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- China’s private investment in fixed assets slowed down for the fourth consecutive month: In October, the growth rate dropped to 5.8%, the lowest level in 2017. Private investment takes up roughly 60% of total investment; the private sector contributes approximately 80% of total jobs, 60% of GDP and 50% of government’s tax income.

Potential impact to China’s economy: Negative

- More than 3400 companies listed on Shenzhen and Shanghai stock markets have released their third quarter reports: a considerable amount of state-owned enterprises (SOEs) are still facing obstacles in business. As of the end of 2016, among all SOEs, listed companies have taken up 61.3% in assets, 62.8% in revenue and 76.2% in profits. Among all A-shares, 290 SOE controlled by the central government have accounted for 39.3% in revenue and 30.7% in profits.

Potential impact to Chinese equities: Negative

- November 14 marks the third anniversary of the launch of Mainland-Hong Kong Stock Connects. As of December 31st, mainland investors have hold Hong Kong shares worth a total of HK $808.8 billion, doubled the amount at the end of 2016. The daily trading volume in Hong Kong through the connect rose +7.2% during the first ten months in 2017, expanding at a faster pace than +2.4% in 2015 and +4% in 2016.

Potential impact to Chinese equities: Positive

- Foreign directly-invested companies in China increased by 26174 in the first ten months of 2017, up +5% compared to a year ago. After the country announced the milestone opening up in its financial markets, the overseas investment is expected to continue to increase.

Potential impact to China’s economy:Positive

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