Deutsche Bank-China Tracker Equity market in focus-117518253

T2se3r0Ot6kwoPaT2se3r0Ot6kwoPaDistributed on: 29/08/2025 07:17:59 GMTDistributed on: 29/08/2025 07:17:59 GMTDeutsche Bank Research Deutsche Bank AG/Hong Kong IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS. Economics China Tracker Date 29 August 2025 Equity market in focus Given that the 90-day extension of the US-China tariff truce and the “anti-involution” policy have been in place for a month, we examined our high frequency data to gauge how: (a) China’s exports, (b) the onshore equity market, and (c) domestic activity have fared. Three key takeaways: Despite another 90-day US-China tariff truce, we see China’s exports slowing. While China’s shipments to Asia remain stable, container shipping tonnage from China to the US showed signs of a slowdown in August, suggesting that front-loading has come to an end. In addition, China’s imports from Korea remained subdued during the first 20 days of August. China’s rare earth exports to the US will be a key factor to watch ahead of the next round of US-China trade negotiations, possibly in late-October/early November. Any resumption of export curbs could escalate the risk of higher US tariffs. Recent rally in Chinese equities fueled by liquidity injected via fiscal spending. The government has been front-loading its bond issuance to support domestic growth, with net government bond (CGB+LGB) issuance reaching ~75% of the annual target by August, significantly surpassing the 3-year average of 61%. This has resulted in a stronger fiscal impulse, which in turn has supported the recent rally in the equity market. Over the past two months, a notable divergence has been observed: household deposits have decreased while non-bank financial institutions’ deposits have risen (this pattern was also observed in late-2024, when the CSI 300 rallied rapidly). Combined with the rise in CSI 300 transaction volumes, we believe that liquidity has been a key driver behind the equity rally. Indeed, the size of margin purchases has reached the levels seen last year (~RMB300bn), three times higher than the past 3-year average, signalling a clear pick-up in risk-on sentiment. Apart from the flush liquidity, upsized share buybacks have also contributed to the rise in equities. YTD corporate share buybacks have reached ~$6bn. Assuming this pace continues, total buybacks could reach ~$9bn by end-2025, the highest since 2022. We continue to see some upside risk for Chinese equities, particularly as foreign participation in this rally has been low, as evidenced by modest inflows into foreign China equity-focused ETFs. Domestic activities are likely to remain supported in September, backed by the sizeable net CGB issuance (estimated to be RMB950bn vs the 3MMA of RMB670bn). Furthermore, we expect to see additional policy support ahead. Given three consecutive months o