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Can Chinese Golden Week save the bear markets?

Tiger drawn on a scroll

The Chinese New Year, the Year of Tiger, will start on the 1 Feb in the lunisolar calendar, with China heading into a week-long Luna Year holiday. Thin liquidity in the Asia markets, a pause in manufacturing and shipping activities, and low volume in the currency transaction market will be the major impacts on the global markets.

The major Chinese stocks indices fell into bear markets in January despite the PBOC imposing multiple stimulus measures to cushion the slowing economy. The two averages, SHI 2000 and CSI 300, both declined 7% in January. In the fourth quarter, China GDP growth printed at 4.0% from the last quarter and 8.1% from a year ago. The Chinese economy still shows strong momentum, while showing signs of softening in the fourth quarter resulting from the pandemic containment measures imposed.

Subdued consumption

The Golden Week holiday was implemented by the Chinese government to boost domestic consumption in retail and travel related industries. However, it might be a quieter holiday this year due to the pandemic containment measures and domestic caution because of Covid-19.

According to Bloomberg, the number of domestic trips is projected to increase by 36% from 2021, but still down 60% from the pre-pandemic level throughout the holiday time until 25 February. Restaurant and hotel bookings are also expected to be modest. Certainly, the halt of international travel since the pandemic are not likely to recover soon. Traders will be watching consumer spending data closely to predict if the Chinese economy could rebound well after the holiday time and into the first quarter.

Chinese January PMI data shows that both manufacturing and service sectors slowed down in the fourth quarter. January is usually a quieter month for manufacturing in China as the holiday time approaches, but the noticeable slowdown in domestic spending is the major impact on the world’s second-largest economy. Business confidence has been affected by the latest Covid-19 outbreak with stock inventory delays and a dramatic fall in the service sector. Economists expect that China will move towards an era of below-5% growth from 2022.

Will the bear markets bounce?

The major Chinese stocks index fell dramatically last Friday as investors took profit to ease worries for the holiday break. In the Chinese saying: New Year gives the new prosperity. Retail sales are expected to be boosted in the holiday time and manufacturing activities are picking up in response to the PBOC’s stimulus measures. The Chinese central bank cut policy interest rates and lowered the Reserve Requirement Ratio (RRR) in January to boost business confidence and domestic spending.

The Chinese stocks might find near term bottoms after the holiday time. Coinciding with the rebound in US stocks last Friday, we might see Asia markets become more resilient in February. The dual-listed Chinese tech giants Alibaba, JD.com and Baidu are all at 12-month lows due to the tech-crackdown policies imposed by the Chinese government last year. There are also chances for these companies to bounce in the new year since the policy shows signs of loosening. The property debts crisis might be also relieved in result of the PBOC’s stimulus measures.

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