China’s financial conditions is loosening in October
CLIMC is available as daily data on Alphien
This report presents the October 2019 update on the Commodity Leading Index Monetary China (CLIMC, see Appendix for index description).
Increasing Loosening Our CLIMC shows that financial conditions as of mid October continued to loosen but at a faster pace than in September. Consumer inflation in September grew 3.0% yoy as pork prices soared. Producer inflation fell 1.2% yoy, hit by weakening demand and mounting trade tensions. RMB is stable against the basket of currencies of main trade partners. Correspondingly, as shown in the Swirlogram, the CLIMC places the financial environment in a increasing loosening mode. The monthly index average of 0.52 is up by 0.03 over the month (one year range is 0.16 to 0.78) and is above the yearly average of 0.47.
CLIMC and Sub-Indices Over the previous month, 2 sub-index of the CLIMC increased, 2 sub-index remained within the month-on-month momentum range of +/-0.1 standard deviations (s.d.) while 2 decreased. On the positive side, the Stress and Arbitrage sub-indices increased due to decreasing market volatility and widening margins on RMB arbitrage transactions respectively. On the negative side, the Credit Risk and Bond sub-indices decreased due to increasing default risks and increasing (government) bond yields respectively.
CLIMC vs. CSI300 The CLIMC correctly captured the major turning points in Chinese equity as measured by the CSI300 during the recent months. The improvement of the index in mid February 2016 has bolstered the markets in March 2016. The improved financial conditions which started in late June 2016 has led to the upward movement of the markets in August 2016. In addition, the weakening financial conditions since November has pointed to the end of the equity rebound in December 2016. The equity market then benefited from relatively loose financial conditions during the first three quarters of 2017. The tightening conditions that prevailed during the last quarter of 2017 and early 2018 weighted on the equity market. The acceleration of loosening conditions has not supported the equity market yet, as shown in the graph below.
Appendix:
Index Composition The Commodity Leading Index Economic Activity China (CLIEAC) is a composite index that provides a measure of overall economic activity in China. The index consists of a equally weighted basket of components which reflect fundamental data related to economic activity. Each index component is Chinese New Year calendar effect-, trend- and seasonally adjusted, smoothed, normalized and updated in the index as new data becomes available. The rolling standard score (Zscore) approach is applied to normalize each component before aggregation. As such, a reading above zero indicates expansion and below zero contraction of economic activity relative to the long-run average. Upwards and downwards movements of the index indicate improving and deteriorating economic activity respectively. The CLIEAC is composed of 14 components covering supply- and demand- side factors across five categories.
- Production: Electricity Production, Fiscal Revenue, Caixin/Markit and NBSC Purchasing Manager Index
- Transportation: Port Freight Traffic, Railway Freight Traffic
- Trade: Total Imports, Total Exports
- Consumption: Retail Sales, Real Estate Sales, Vehicle Sales
- Investments: Fixed Assets Investment Real Estate and Manufacturing, Foreign Direct Investments
Disclaimer This material is solely for your information and use. It is not a solicitation or an offer to participate in any trading strategy. Investors should rely solely on fund documents in making investment decisions. This material does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for, any investments, nor should it or any part of it form the basis of, or be relied on in any connection with, any contract or commitment whatsoever. FOUR ELEMENTS expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) the use of this note, (ii) reliance on any information contained herein, (iii) any error, omission or inaccuracy in any such information. The price and value of investments mentioned and any income which might accrue may fluctuate and may fall or rise. Past performance is not necessarily a guide to future performance. This information and any related recommendations or strategies may not be suitable for you; it is recommended that you consult an independent investment advisor if you are in any doubt about any investments or investment services. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. The levels and basis of taxation may also change from time to time.
Source: Four Elements Capital