Nasdaq struggling with its 50-day Moving average

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The risk-off sentiment continued as investors looked into today’s CPI data release. Indeed, August has been a seasonally tough month for equities, especially when major indices had a good run.

China had an inflation problem, unlike others.

The world is increasingly unease with China’s latest consumer prices that showed a decline, the first since the onset of the pandemic. It is a reflection that the Chinese economy is in a weak state. Indeed, falling prices, often known as deflation, are a negative catalyst for economic growth.

The latest data implied a slow domestic consumption that could not lift prices from the downward spiral. To exacerbate things, Tuesday’s statistics also paint a dull picture of the reality, as exports fell sharply, certainly a blow to bulls who have depended on the re-opening narrative to spur risk-on buying.

A tough shift to a consumption economy

If one could envision a modern Chinese economy, it would be the transition to a consumption-driven economy, a distance from the current economy that is still largely buoyed by export-oriented sectors.

This is paramount for the Beijing government given that the export of goods is no longer a lucrative mode for China given the rise of technology Cold War, which is gaining momentum, especially on the export restriction on chips.

We could also expect President Biden to release further plans to restrict private equity and venture capital investment outflow into Chinese technology companies.

The property sector is a drag on the Chinese economic recovery

Then, we have the property sector, which is still sluggish and in crisis mode, given its weak balance sheet and huge debt burden. Growing uncertainty over the developers’ ability to pay off their dues on bonds worries buyers of property, with some stopping payment on their mortgage payment, deepening cashflow woes to property developers’ accounts.

One example is Country Garden, China’s largest developer, which had missed its $1 billion loan interest payment and spooked the markets.

Cautiously optimistic about more stimulus

Given such a challenging and daunting outlook, coupled with high youth unemployment that could unsettle the social fabric, we remain fairly optimistic that while the Chinese government may not introduce a floodgate of stimulus, it appears to be warming to ideas of a fiscal stimulus. If this is true, it will be a big leap forward, given prior stimuli have largely been confined to the monetary front.

With that, we maintain positioning to accumulate Chinese counters on any signs of weakness.

What’s on the menu today?

8.30 pm : Core CPI and CPI, Initial Jobless Claims
4.15 am: FOMC Member Harker Speaks

It is 10 August, Thursday, 8.50 am in Singapore and 8.50 am in New York. The market is highly volatile, and our longer-term holdings have started to retrace in value. Our major PLTR holdings continued to drag our portfolio as we traded more decisively to cushion the overall impact on our returns while paring more positions leading to CPI day.