Hang Seng, Shanghai Composite index waver ahead of China GDP data

Chinese equities continued wavering on Monday as traders shifted their focus to the crucial GDP, retail sales, and industrial production numbers. In Hong Kong, the blue-chip Hang Seng index retreated by over 0.70% on Monday. 

Hang Seng chart by TradingView

China GDP data ahead

In Mainland China, the closely-watched Shanghai Composite index soared by over 1.26% and is hovering near its highest point this year. The China A50 index rose by 2.50% while the Shenzhen Component spiked by over 1.53%.

Most importantly, the Chinese yuan has been in a strong sell-off in the past few months and has now crashed to its lowest point since November last year.

The biggest China news of the week will come out on Tuesday when the National Bureau of Statistics (NBS) will publish the latest data dump from Beijing. These numbers will provide more information about the state of the country’s economy as the recovery continues.

Economists polled by Reuters expect the report to show that China’s economy expanded by 4.8% in Q1 after growing by 5.2% in the previous quarter. A stronger-than-expected GDP figure will signal that the economy is finally making progress.

China has been boggled by major issues in the past few months. The real estate sector, which is a big component of the economy, is slowly melting down as companies like Country Garden and Evergrande collapse.

China FDI retreated in 2023

At the same time, foreign investors are no longer allocating funds to the country as they used to in the past. They invested $33 billion in China in 2023, the lowest figure in more than a decade. 

Just last week, Fitch downgraded the outlook of China’s economy, saying:

“Notable downside risks include uncertainties around the economic transition, demographics, declining productivity, abrupt regulatory policy shifts and geopolitical risks, especially related to trade and investment flows.”

China is also facing a substantial employment crisis as more companies continue being cautious. The most recent report showed that the unemployment rate stood at 5.2% in March. Youth unemployment rose to almost 15% in February.

The NBS will also publish the country’s retail sales numbers on Tuesday. The recent numbers showed that the country’s retail sales came in at 5.1% in March after rising by 5.5% in the previous month.

There are signs that the Chinese economy is starting to recover. For example, the prices of industrial metals have jumped sharply in the past few weeks. Iron ore has moved above $100 while metals like copper and aluminium have jumped to their highest point in months.

China is the biggest buyer of key industrial metals like copper, iron ore, and aluminum. As such, a sharp increase in prices is usually a sign that the economy is doing well.

Therefore, strong economic numbers will likely provide investors more confidence to move back to Chinese equities. However, weaker economic numbers will likely drag key Chinese indices like the Hang Seng, China A50, and the Shanghai Composite.