Tomorrow’s Headlines Today 02/15/2022

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Below is a summary of the important financial news from China that you need to know. For more information about this column, please read this.

Analyst Forecast: January CPI Expected to Slow to Just 1%

The National Bureau of Statistics will soon release the January CPI and PPI data, which analysts believe will decelerate. Regarding the CPI, pork prices actually fell in January, and food prices in general rose only slightly. The increase in food prices is significantly lower than that in previous years, if adjusted for seasonal factors. Source: XinhuaNet (新华网)

Possibility of China Cutting RRR and Interest Rates

From February 7 to 14, the Chinese central bank's open market operations took a turn and withdrew over RMB 1 trillion (USD 160 billion) of liquidity from the system. Yet major money market rates still fell sharply (indicating that PBoC is easing). Analysts believe it’s only normal for the central bank to withdraw some liquidity, as (excess) cash flew back to the banking system after the Chinese New Year holidays. Going forward, there is still (strong) possibility of China lowering the bank reserve requirement ratio (RRR) and interest rates. The liquidity condition is stable and sample, which should benefit Chinese financial markets. Source: China Securities Journal (中国证券报)

Two-Pronged Approach to New and Old Infrastructure Investments

After the Chinese New Year holidays, many municipal governments held a Day One meeting to kick start a series of major infrastructure projects – a mixture of new and old infrastructure investments. More than 10 provinces and cities like Beijing, Shanghai, Shandong, and Zhejiang have announced a list of the major infrastructure buildouts in 2022, with a total investment of over RMB 10 trillion (USD 1.6 trillion over multiple years). Traditional infrastructures such as transportation and energy remain the focus. However, investments in new infrastructures such as 5G networks and data centers are also highly expected. Source: Economic Information (经济参考报)

Foreign Holdings of Chinese Bonds Rose by RMB 70 Billion (USD 11 billion) in January

RMB assets continue to attract foreign investors in the New Year. Based on data released by the PBoC, foreign institutional investors held RMB 4.07 trillion (USD 640 billion) worth of inter-bank market bonds at the end of January 2022 – an increase of around RMB 70 billion (USD 11 billion) from a month ago. The increasing foreign capital inflow to RMB assets suggests global investors are optimistic about China’s long-term growth prospects (and also not so worried about the currency perhaps). Source: China Securities Journal (中国证券报)

Broker Stock Prices Drop Despite the Strong Fundamentals

The brokerage sector slumped yesterday (February 14), which was a focal point for the market. The (China A-share) Securities Sector Index fell by more than 4% yesterday, East Money Information (300059.SZ) declined more than 13%, and GF Securities (000776.SZ) dropped by more than 9%. China Great Wall (002939.SZ), Huatai Securities (601688.SH), and Xiangcai Securities (600095.SH) were also among the lead decliners. From a fundamental point of view, the brokerage sector still has strong earnings growth. So far more than 30 brokerage firms have pre-announced their 2021 earnings, of which more than 80% are positive, and 50% will have net earnings growth exceeding 30%. Taking a long-term view, several factors such as the curb on real estate speculation and the new asset management rules should continue to drive Chinese household wealth to the stock market. This means the brokerage firms should enjoy higher stability and growth potential in their wealth management business. Source: Securities Times (证券时报)

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