Despite better than expected results from China’s Flash Manufacturing PMI, the HSI was unable to make any gain as it ended Thursday marginally down -0.1%.  Data came in at 51.7, beating Bloomberg’s survey of 50.8 and exceeding its previous 50.4.

In January, the HSI reached its highest of 23,822 since April 2011, representing an eye-catching 13.1% rally from its November low. Market sentiment has fizzled since then, it is currently down 1.9% year-to-date.

China in transition
Outgoing Chinese Premier Wen Jiabao said that the nation lacks a sustainable and balanced growth model while facing accumulative “social problems”. Before leaving the congress, he set a 2013 economic growth target of 7.5%, unchanged from last year.

Incoming new premier Li Keqiang faces the task of navigating China through its recovery from the slowest economic growth in 13 years while curbing asset bubbles and rising credit issues.

China economic figures
Prior to the Flash Manufacturing PMI data, Bloomberg reported on 10 March that China’s retail sales and industrial output had their weakest start since 2009. Industrial production had climbed 9.9% in the first 2 months of the year while retail sales rose 12.3%. Both data had missed economist’s estimates, with the gain in retail sales being the smallest for a January-February period since 2004.

Meanwhile, consumer prices rose 3.2% in February from a year earlier.

One bright spot would be China’s exports, as it jumped 23.6% during the January to February period.

Tighter rules for property market
The Chinese government introduced one of its harshest property curbs early in March. The measures include stricter implementation of an existing 20% capital gains tax on home sales, higher down payments for those buying a second home in cities where prices escalate, as well as tightening of restrictions on home buying.

To further dampen sentiments, real estate companies found hoarding land or collaborating to push up home prices will be barred from getting new development loans or raising funds in capital markets, stated Bloomberg.

In Hong Kong, the government doubled the sales tax on property costing more than HK$2 million and targeted commercial real estate for the first time, as home prices doubled in the past four years.

Source: Macquarie Research - 22 Mar 2013