研究报告全文：23Dec2022Contents2023ChinaEconomyOutlook22023MarketOutlookStrategy16ChinaInternetI26ChinaInternetII34ChinaTechnology45ChinaSoftwareITServices54ChinaHealthcare61ChinaConsumerStaples66ChinaConsumerDiscretionary69ChinaAutomobiles82ChinaInsurance89ChinaProperty95ChinaCapitalGoods98ChinaGas108PLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE123Dec20222023ChinaEconomyOutlookEconomistBingnanYEPhDyebingnancmbicomhkBoostingGrowthasthePriorityOverseaseconomyismovingintoarecessionfromstagflationChinaseconomyisbracingforagradualresumptionChinasnewleaderswillfocusonconfidencerestorationeconomicresumptionandtheywilltrytheirbesttoreopentheeconomystabilizepropertymarketandrestoremarketconfidencewithapro-businessstanceOverseasrecessionwillnotchangeChinaseconomicresumptioncyclein2023-2024InthemediumtermChinawillcontinuetotransititseconomytowardsatechnologyhigh-endmanufacturingmodernserviceandconsumptiondrivenoneChinawillcontinuetoopenitseconomyandreshapetheglobalizationGlobaleconomyhasseenunevenresumptionafterthepandemicduetodifferentreopeningpaceinvariouscountriesIn2023-2024divergencewillremainwithrapidgrowthinASEANIndiaChinaandlowgrowthinEuropeandNorthAmericaOverheatedhomeeconomygoodsconsumptionhousingpricewithhighinflationhighinterestrateswillpavethewayforamoderaterecessionintheUSin2023TherewillbenogreatrecessionthankstostrongbalancesheetsofhouseholdsandbanksWithashiftfromCovidcontroltoboostinggrowthChinamayseeitsGDPgrowthupfrom27in2022to51in2023and47in2024ThereflationeffectshouldbemoderateasCPIgrowthmayrisefrom2in2022to22in2023and25in2024PPImaydrop05in2023andrise16in2024afterincreasing43in2022ConsumptionandservicesectorhasmoreupsideroomforresumptionRetailsalesserviceGDPFAImaygrow6559and43in2023afterrising062and5in2022Exportsofgoodsareexpectedtodrop35in2023afterrising7in2022whileimportsmayrise05aftergrowing1ChinasreopeningisfasterthanexpectationsasthecountryisbracingforthepeakofitsepidemicwithinthreemonthsHealthcaretransportationcateringtravelhotelrecreationservicesshouldseearapidrecoverywhiledurableshousingmarketmayhaveagradualresumptionChinasmonetarypolicyremainsaccommodativewithampleliquiditysupplyandeasingcreditpolicyThePBOCmayfurthercutRRRLPRsfor1-2timesUSRMBratesmaydeclinefrom692atend-2022to665atend-2023Fiscalpolicywillbemoreproactivewithbroaddeficitratioupfrom58in2022to62in2023andpolicybanksspecialloansSOEsdebtcontinuingtoexpandChinashousingmarketmaystabilizefrom2Q23andseemildgrowthin2H23Housingsalesanddevelopmentinvestmenthasseentheirpeakduetoshrinkingmarketspeculationdecliningpopulationaged25-40andslowingurbanizationChinawillnotlaunchpropertytaxinadditionalcitieswithinnexttwoyearsOverseaseconomywillseearecessionin2023afterthestagflationin2022Thenitwillrecoveragainin2024aftertherecessionissignificantlylowerthaninflationTheinvestmentclockchangesfromcommoditystagflationtobondsrecessionandthentostocksrecoveryChinahasledoverseaseconomyinthelatestcycleasitwillshiftfromarecessionin2022toaresumptionin2023-2024Chinesestocksshouldseeabullmarketcyclein2023afterthebearcyclein2021-2022PLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE223Dec2022Figure1ChinaEconomyForecast20092010201120122013201420152016201720182019202020212022F2023F2024FGDPRealGDPYoY941069679787470686967602281275147NominalGDPUStrn5161768596104110112123139143147177178189208PercapitaGDPUS3823454155976280705775867923806587979880101241040412554126321337814755InflationYoYGDPdeflator02698023211100154335120544271121CPI07335426262014201621292509202225PPI54556017191952146335031881430516GDPbyindustryYoYAgriculture40434245384139334035313171424043Industryconstruction10312710784807259605958492582344244-VAIOofenterprisesabovedesignatedsize110157139100978361606662572896354346Service96979580838388818380721982205951ContributiontoGDPGrowthpptConsumption54506344394249453943350253104134Investment80673933413316312729171811080708Netexports40110602020105080305080617090305DemandindicatorsYoYFAI304245238206196157100817259542949504353-Manufacturing266269318220185135814248953122135905565-Propertydevelopment161332279162198105106970959970441005030-Infrastructure42218565137212203173157149183334021108050Retailsales159188185145131120107104102908039125066555Exportsofgoods160313203797860297779990536296703565Importsofgoods112388249437205143551611582706301100545MonetaryconditionsM2YoY2771971361381361221331138181871019012511095M1YoY3242127965933215221411815448635556672NewRMBloansRMBtrn968075828998117127135162168196200210233251TotalsocialfinancingRMBtrn139140128158173165154178262225256349314328361390RRRforlargebanks1551852102002002001751701701451301251151101009510YT-bondrates3733903443584563622833023883243143142772953103151YLPR5735514304304304314153853803653553555YLPR480465465465450450PublicfinanceFiscalrevenueYoY11721325012910286584574623839107156550FiscalexpenditureYoY21917821615311383132637687812903625040GeneraldeficittoGDPratio27251815202124292926283731283128SpecialfundrevenueYoY9339235218119348226120106481900050SpecialfundexpenditureYoY9737918177117327321134288374070120LGspecialbondquotatoGDPratio051015223732303129BOPExchangeratesTradesurplusofgoodstoGDPratio48403036374253443927283532393032TradesurplusofservicetoGDPratio05040609132020212121181006040709CurrentaccountbalanceGDP48391825152327171502071718221517FinancialaccountbalancetoGDPratio38463404360540370912010402060103ErroromissiontoGDPratio08090210070618191713091109120709ForexreserveUStrn240285318331382384333301314307311322325308313310USRMBspotrateyear-end683659629623605620649695651687697654637692665650SourceWindCMBIGMPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE323Dec2022OverseasEconomicOutlookDivergenceinGrowthProspectGlobaleconomyhadanunevenrecoveryin2020-2022SaudiArabiaTurkeyandChineseTaipeisawtheir3-yearCAGRsofGDPbacktothepre-pandemiclevelsThe3-yearCAGRsofGDPforAustraliaBrazilKoreaMainlandChinaandVietnamreached60-90ofthelevelsin2017-2019FortheUSIndiaPolandandIndonesiathe3-yearCAGRsrecoveredto45-50ofthepre-pandemiclevelsEurozonetheUKandCanadasawtheir3-yearCAGRsbelow35ofthegrowthratesin2017-2019ForRussiaJapanMexicoThailandandSouthAfricatheir3-yearCAGRofGDPremainednegativeGlobaleconomywillremaindivergentin2023-2024VietnamIndiaIndonesiaMainlandChinaandThailandwillgrowrapidlywiththeir2-yearCAGRsofGDPprobablyat66654948and37innexttwoyearsNorthAmericaandEuropeshouldseelowergrowthThe2-yearCAGRsofGDPinCanadaUSEurozoneUKandRussiamayreach11080701and-08in2023-2024ChinahasbeenaheadoftheUSinthelatestbusinesscycleChinareopeneditseconomywitharapidresumptionin2020Thecountrytighteneditspoliciesmacroeconomicpoliciespropertypolicyregulatorypolicycarbonreductionpolicyin2021Chinesestocksbegantoseethebearmarketcyclefrom1Q21astheeconomystartedtoslowfrom2H21Chinaseconomywasclosetoahardlandingin2Q22duetoseverelockdownsandpropertymarketslumpTheeconomyremainedweakin2022AsthepolicymakersshifttheirfocusfromCovidcontroltoboostinggrowthwithreopeningandcrediteasingChinaseconomywillbeinagradualresumptioncyclein2023TheUSreopeneditseconomyin2021withrisinginflationTheFedtightenedpolicyin2022astheSP500indexpeakedinthebeginningoftheyearTheUSeconomybegantoslowin2022andmayseearecessionin2023USRecessionin2023TheUSeconomyislikelytoseearecessionin2023TheaggressivestimulusaftertheepidemichascausedanoverheatinghomeeconomyconsumptionofgoodsandhousingmarketWiththesupplychainbottleneckandlaborshortageinflationhasreachedthehighestin40yearsandsoftenedveryslowlyTheFedhastokeeptherateshighforalongertimethaninpreviouscyclesloweringthepossibilityofasoftlandingin2023Both10Y2Yand10Y3Mtreasuryyieldspreadshavebeeninvertedindicatingthatarecessionishighlypossibleinnext12monthsTherecessionin2023shouldbemoderateItislikelytobemoreseverethantherecessionin2001butmuchlessseverethanthegreatrecessionin2008-2009andrecessionsin1980sInthepast8recessionssince1960sGDPonaveragedeclinedby18andunemploymentrateonaverageincreasedby27pptsTherecessionin2001wasverymildwithaslightdeclineofGDPby01andasmallincreaseofunemploymentrateby15pptTheDot-Combubbleburstand911attackhurtbusinessconsumerconfidencecausingamildrecessionin2001TheGreatRecessionin2008-2009wasveryseverewiththeGDPdown38andunemploymentrateup45pptsThegreatrecessionwascausedbytheglobalfinancialcrisisamidtheburstofUShousingbubbleTheUSexperiencedtwosevererecessionsin1980s4Q1973-1Q1975and3Q1981-4Q1982withGDPrespectivelydown31and26andunemploymentraterespectivelyup42pptsand36pptsThetworecessionsweremainlyduetothestagflationenvironmentaftertheKeynesianstimulusandoilcrisesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE423Dec2022Therecessionin2023maybeabitseverethanin2001HomeeconomyconsumptionofgoodsandpropertymarketbecameoverheatedwhilehighinflationpersistedfortoolongduetosupplybottleneckandlaborshortageWiththehighinterestrateslastingforlongtherecessionin2023maybeabitmoreseverethanin2001Therecessionin2023shouldbelessseverethanthatin2008-2009asthepossibilityofcrisiswillbelowForonethingAmericanhouseholdsbalancesheetsarerelativelyhealthyrightnowwiththeirdebt-to-incomeratiodownfrom140in2007to80in2021Householddebtserviceratiowasaround9in2021belowthe12redlinedebtserviceratioincreasesby09pptforevery1ppthikeofinterestratesForanotherthingtheUSbankingsystemisveryprudentwithhighcapitaladequacyratioandcreditqualitySubprimeloansonlyaccountforlessthan2ofhomemortgageloansTherecessionin2023shouldalsobelessseverethanthetworecessionsin1980sAtpresenttheFedstillhascredibilitysothatlong-terminflationexpectationsremainstableUSinflationhasalreadypeakedandshouldgraduallyslowdownEnergyintensityoftheUSeconomyhassignificantlydeclinedinthepastdecadesThecountryhasbecomethelargestenergyexporterintheworldItisunlikelytoseeanenergycrisiswhichpartiallytriggeredthesevererecessionsin1980sPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE523Dec2022Figure2GlobalgrowthprospectCAGR108642024UKUSAIndiaBrazilJapanTurkeyRussiaPolandMexicoCanadaVietnamThailandAustraliaEurozoneIndonesiaSouthAfricaSouthSouthKoreaSouthSaudiArabiaChinaTaiwanChinaChinaMainlandChina2017-20192020-20222023-2024SourceCompanydataCMBIGMestimatesFigure3ChinaaheadofUSinthecycleFigure4CPIgrowthsofmajoreconomiesYoYYoY2012151010856402501021Q212Q193Q194Q191Q202Q203Q204Q202Q213Q214Q211Q221Q192017201820192020202120224Q23F2Q22F3Q22F4Q22F1Q23F2Q23F3Q23F1Q24F2Q24FUSGDPChinaGDPUSJapanEurozoneUKChinaSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesFigure5US2YtreasuryyieldvsFFRFigure6M2growthofmajoreconomiesYoY1030982572065154310215002014201720201990199319961999200220052008201120112021200920102012201320142015201620172018201920202022FederalFundsRateUS2YrTreasuryYieldUSEurozoneJapanChinaSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE623Dec2022Figure7USgrowthbreakdownFigure810Y3MspreadrecessionprobabilityYoY2YrCAGRfor2021204501545103405352300255120101515010205251030200120032005200720092011201320152017201920212019202020212022GoodsconsumptionServiceconsumptionUS10Y3MyieldspreadLHSBusinesscapexHousinginvestmentRecesionprobabilityin12monthsRHSGoodsexportServiceexportsSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesFigure9USAspast8recessionsFigure10USpropertymarketbubble11981100160150140130120110100908070198319892015202119811985198719911993199519971999200120032005200720092011201320172019NewhousepricetoincomeratioNewhousepricetorentratioSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesFigure11UShouseholddebtburdenFigure12USmortgagemixbycreditquality100140149013080120127011060501001040903080820101982198419982014198619881990199219941996200020022004200620082010201220162018202019800DebttoincomeratioLHS201120182008200920102012201320142015201620172019202020212022DebtserviceratioRHSOtherSubprimeAltAPrimeSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE723Dec2022ChinaEconomicOutlookGradualResumptionin2023-2024ChinaeconomyhasfollowedaW-shapedresumptionafterthepandemicshockAnoutbreakoftheepidemicinWuhanwithnationallockdownscausedtheGDPtodropby69in1Q20HoweverChinarapidlycontrolledtheepidemicandreopenedeconomyfrom2Q20withaV-shapedrecoveryin2020ThenChinatighteneditspoliciesinliquiditypropertyinternetandcarbondioxidecausingtheseconddownturnfrom2H21Theeconomyexperiencedahardlandingin2Q22amidlockdownsandpropertymarketslumpChinalooseneditseconomicpoliciesagainThepolicymakersshiftedattentionfromCovidcontroltoboostinggrowthastheeconomyshouldgraduallyresumeaheadChinaeconomyshouldbeinagradualresumptionin2023-2024WeexpectChinasGDPgrowthtorisefrom27in2022to51in2023postingtwo-yearaveragegrowthof39TheGDPgrowthmayreach47in2024belowthepotentialGDPgrowthof5-6Therearefoursupportivefactorsfortheresumptioncycle1Newleaderswillfocusoneconomicgrowthandconfidencerestoration2Rapidreopeningofeconomy3easingmacroeconomicpoliciestoboostgrowth4andgradualstabilizationofhousingmarketChinasconsumergoodsandserviceswillhavemoreupsideroomWeexpectretailsalesandserviceGDPrespectivelytoincrease65and59in2023afterslightlyrising06and2in2022ThecontributionofconsumptiontoGDPgrowthmayrisefrom1pptin2022to41pptsin2023and34pptsin2024FixedassetinvestmentFAIshouldfacedownsidepressureDuetobaseeffectoverseasrecessionfixedinvestmentininfrastructureandmanufacturingwillgraduallyslowdownHoweverpropertydevelopmentinvestmentshouldimprovewithlessYoYdeclinesWeexpecttotalfixedassetinvestmentFAItoincreaseby43in2023and53in2024afterrising5in2022ThecontributionofFAItoGDPgrowthdeclinedfrom08pptin2022to07pptin2023and08pptin2024ChinasexportsmaydeterioratesignificantlyduetodestockingcycleoverseasrecessionriskanddisinflationtrendintheUSWeexpecttheexportsofgoodstodrop35in2023andtorise65in2024afterrising7in2022ChinasimportsvolumemaygraduallyimproveamidthereopeningofeconomyHoweverimportspricemayfurtherdeclineTheimportsgrowthmayslightlyslowfrom1in2022to05in2023andreboundto45in2024ThecontributionofnetexportstoGDPgrowthshoulddeclinefrom09in2022to03in2023and05in2024ModerateReflationaftertheReopeningChinasreflationshouldbemoderateafterthereopeningWeexpecttheCPIgrowthtoslightlyrisefrom2in2022to22in2023and25in2024PPIisprojectedtodrop05in2023andincrease16in2024afterrising43in2022GrowthofGDPdeflatormaydeclinefrom27in2022to11in2023beforereboundingto21in2024TherearethreereasonswhyChinasreflationrisksshouldbelowintheresumptioncycleFirstdomesticdemandshouldbeinagradualresumptionespeciallyinpropertysectoranddurablesinChinaChinesehouseholdsusuallyearnsfirstandspendslaterwithahighsavingrateChinesegovernmentisunlikelytoprovidecashsubsidytohouseholdsTherewillbenodemandoverheatingriskinChinaSecondoverseasdemandshouldcontinuetosoftenwithrisingrecessionriskOverseassupplychainshouldfurtherresumetonormalBothoverseasinflationandChinasexportswillslowaddingdownsidepressureonChinasinflationThirdlyOmicronvirusismuchweakerasthelatestoutbreakshouldhavelimitedPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE823Dec2022impactonChinaslaborparticipationrateAccordingtoexperiencesofSouthKoreaTaiwanandVietnamDeltavirusoutbreakhadsomenoticeableimpactonoveralllaborparticipationHowevertheimpactofOmicronviruswasverylimitedReflationmaybestronginsomeservicesectorslikeairtransportationtourismcateringandhotelafterthereopeningDemandforthoseserviceswillrapidlyreboundHoweversupplycapacityneedssometimetoresumeWeshouldseeupwardpressureonpricesinthesesectorsafterthereopeningFigure13ChinaW-shapedeconomicrecoveryFigure14ChinaseconomicgrowthYoY20YoY2YrCAGRfpr202130152010105001052010302Q193Q201Q182Q183Q184Q181Q193Q194Q191Q202Q204Q201Q212Q213Q214Q211Q222Q223Q221Q24F1Q23F2Q23F3Q23F4Q23F2Q24F3Q24F4Q24F4Q22F2019202020212022GDPPPIRetailsalesFAIExportsofgoodsSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesFigure15ChinaVAIOandserviceoutputFigure16ChinaFAIgrowthYoY2YrCAGRfor2021YoY2YrCAGRfor202110255155055151025153520192020202120222019202020212022VAIOServiceoutputPropertyInfrastructureManufacturingSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE923Dec2022Figure17ChinaimportexportvolumegrowthFigure18ChinaCPIPPIgrowthYoY3MMAYoY301625142012101581065402502104156201620172018201920202021202220192020202120222023ExportvolumeofgoodsImportsvolumeofgoodsCPIPPISourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1023Dec2022KeyPoliciesin2023RestoringConfidenceandBoostingGrowthasthePriorityTheCovid-19pandemichasseverelyinfluencedconfidencegrowthandsocietyinChinaThenewleaderswillfocusonconfidencerestorationandeconomicgrowthin2023ThepolitburosrecentmeetingoneconomicworkindicatesashiftfromCovidcontroltoboostinggrowthinChinaThepolicymakershavemadestrongercommitmenttoeconomicgrowthastheymaysettheGDPgrowthtargetat5for2023GDPgrowthwillbethemostimportantKPIforlocalgovernmentofficialsnextyearThepolitburohasstressedonexpandingdomesticdemandforthefirsttimeinmanyyearsasithasconstantlyemphasizedonsupply-sidereforminthepreviousyearsBothfiscalpolicyandmonetarypolicyshouldbemoreaccommodativenextyearwithhigherbroaddeficitandadditionalRRRLPRcutsThepolitburohasproposedtoincreasehouseholdspropensitytoconsumeindicatingthatconsumptionboostshouldbethekeytoexpanddomesticdemandThepolitburohasvowedtosignificantlyboostmarketconfidenceindicatingconfidencerestorationshouldbethekeytargetnextyearChinasnewleaderswilltakethepro-businessstancetowardstheprivatebusinessincludinginternetgiantsThepolitburohasalsopledgedtoattractmoreforeigncapitalindicatingfurtheropeningofeconomyandasofterstanceagainsttheUSaheadReopeningofEconomyChinasreopeninghasbeenfasterthanexpectationsThecountryisbracingforthepeakoftheinfectionsinJanuary2023whenmanypeopletravelandgatherduringtheChineseNewYearholidayThereisnoturningbackoncethereopeningprocesstakesplaceCentralpolicymakershavecalledforbetterprotectionofvulnerablepeopleThecentralgovernmenthassetavaccination1stdosetargetof90forpeopleagedover80andavaccination3rddosetargetof95forpeopleaged60-79byendofJanuary2023BasedonexperiencesofSouthKoreaVietnamandChineseTaipeihouseholdconsumptionshowedaJ-curverecoverytrendafterreopeningIttooksometimeforpeopletogetusedtothepost-CovidnewnormInSouthKorearetailsalesofapparelshoesfuelandcosmeticshadthestrongestpositivecorrelationswithpopulationmobilityindicatingrobustrecoveryofsocialactivityandtravellingafterreopeningHoweverretailsalesoffurniturehouseholdapplianceautomobileshowednegativecorrelationswithpopulationmobilityastheirdemandwasrelatedtohomeeconomyorneedmoretimetoresumeInChineseTaipeitherewassimilartrendsasconvenientstoresalesentertainmentservicesmotorsclothingandpharmaceuticalsshowedthestrongestpositivecorrelationswithpopulationmobilityChinashouseholdconsumptionmayshowaW-shapedupwardtrendafterreopeningAtfirstpeoplewillbeworriedabouttheinfectionwithadeclineoftheirmobilityAsmoreandmorepeopleviewtheOmicroninfectionasaflupeoplemobilitywillresumeAirlinerailwaytransportationcateringshotelstourismapparelcosmeticsandmedicalproductserviceshouldrecoverrapidlysupportingthefirstwaveofconsumptionrecoveryAsemploymentincomeandconfidenceneedsmoretimetoresumehouseholdconsumptionmayslowagainafterthefirstwaveofrecoveryThenitwillshifttothegradualresumptionmodeReopeningshouldbethemostimportantdriverforChinaeconomicresumptionin2023-2024Accordingtoourestimatestherecoveryoftransportationserviceretailsaleserviceaccommodationcateringservicecouldcontributeover1ppttoChinasGDPgrowthThePLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1123Dec2022reopeningwillalsoboostconfidencecapexandemploymentwhichisalsopositiveforrealestatemarketanddurablesalesEasingMonetaryFiscalPoliciesChinasmonetarypolicyshouldremainaccommodativeasthegrowthisstillbelowpotentialgrowthandreflationriskislowAscreditdemandandriskappetitereboundsliquiditydemandmayincreasewithamoderateriseofmoneymarketratesHoweverliquidityconditionshouldremainaccommodativein2023RRRmaybefurthercutonceortwicemoreCreditpolicyshouldstayeasingasPBOCmayfurtherlowerLPRsandguidebankstoexpandcreditsupplytomanufacturinghardtechservicebusinessSMEsThecentralbankmayfurtherloosencreditpolicyforpropertysectorWeexpectcreditactivitymayrecovergraduallywiththegrowthofnewRMBloansandtotalsocialfinancingrespectivelyupfrom53and46in2022to11and10in2023AssavingpropensityandriskaversionsentimentdeclineM2growthmayslowfrom125atend-2022to11atend-2023ChinasfiscalpolicywillbemoreproactiveBroadfiscaldeficitincludinggeneralfiscaldeficitlocalgovernmentspecialbondquotamayincreasebyRMB800bnin2023Broadfiscaldeficitratiowillrisefrom58in2022to62in2023Chinawillexpandpolicybankcreditandlocalgovernmentfinancingvehiclesfinancingasquasi-fiscaltoolstoboostthegrowthSometaxreductionpoliciesmayextendinto2023suchasthepurchasetaxexemptiononnewenergyvehiclesandvalue-addedtaxreductionforsmallmicrobusinessesSomenewtaxreductionschemesmaybeintroducedsuchasfurtherreductioninindividualincometaxThetotalscaleoftaxreductionmayexceedRMB1trnin2023Weexpectgeneralfiscalrevenueandexpendituretorespectivelyriseby65and45GovernmentswillspendmorefundsoneducationtechnologyemploymentsocialsecurityhealthcareagricultureandruraldevelopmentnextyearWeexpectUSDRMBexchangeratestorisefrom692atend-2022to665atend-2023asbalanceofpaymentconditionshouldbemorebalancedIn2023theUSislikelytoseearecessionwhileChinawillbraceforthereopeningSino-USinterestspreadsandrenminbishouldreboundtosomeextentChinastradesurplusofgoodswilldeclineasoverseasrecessionanddomesticreopeningindicatesexportswillhavemoredownsideroomthanimportsin2023Meanwhiletheresumptionofcross-bordermobilitytendstoexpandChinasservicetradedeficitChinascurrentaccountsurplustoGDPratiomaydecreasefrom22in2022to16in2023ThefinancialaccountmayseelesscapitaloutflowafterthereopeningImprovementofHousingMarketPBOCandbankingregulatorhaveannouncedthepoliciestoboostcreditfinancingtopropertysectorTheauthoritiesencouragebankstoextendpropertydevelopersmatureddebtinnextsixmonthsbyoneyearloweringtheriskofaDomino-typecollapseofpropertydevelopersTheauthoritiesalsoguidebankstoprovideadditionalfinancingsupporttounfinishedhousesBanksarealsoencouragedtolowerthedownpaymentratiosandmortgageratesforfirstandsecondhomebuyersThepoliciesindicatenewleaderswillfocusoneconomicgrowthandtakegreateffortstostabilizethepropertymarketwhichwillhelpboostriskappetiteinthefinancialmarketSalesprospectisthekeyfactortodeterminenetassetvalueofpropertyprojectsandbankscreditsupplyconditiontothepropertysectorAtpresentthemajorfactorweighingonChinaspropertysalesisweakdomesticdemandFirsthouseholdincomeandconfidencehasweakenedduetoeconomicslowdownChinesehouseholdshavecutordelayedlarge-sumexpendituresincludinghousepurchaseSecondnumerousrealestatedevelopershavefallenintoliquiditycrisisamidtheaggressivedeleveragingpolicyPotentialhomebuyershavepostponedtheirpurchaseplanduetoconcernsabouttheforwardPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1223Dec2022deliverypre-soldhousingLastbutnotleastChinesehouseholdstendtobuyapropertywhenpricesaregoingupbutnowhomepriceshavebeendecliningChinaspropertysalesislikelytostabilizefrom2Q23andmayseemildgrowthin2H23ForthewholeyearhousingsalesshoulddeclineslightlyThereopeningshouldfacilitatearesumptionofemploymentincomeandconfidencewhichcouldsupporthousingdemandinthefutureAdeclineofpropertydevelopersinsolvencyriskcouldimprovehomebuyersconfidenceInadditioneasingcreditpolicyshouldsupporthousingmarketrecoveryWeexpectthedownpaymentratioandcontractratesofmortgageloansmayfurtherdeclineforfirst-homeandsecond-homebuyersWebelieveChinesegovernmentwillnotlaunchpropertytaxinnexttwoyearsTheresumptionofChinaspropertymarketin2023shouldbemoregradualandslowthanthepreviouscyclesThespeculativedemandhassharplydeclinedWithanagingpopulationandslowerurbanizationhousingdemandinChinahasalreadypeakedandisheadingforadownwardtrendIntheresumptioncycleaheadhousingsalesshouldseethebottomfirstfollowedbydeveloperscashflowconditionandrealestatedevelopmentinvestmentmayrecovermoreslowlyGeographicallyhousingsalesintier-1citiesshouldbemorerobustthanintier-2andothercitiesduetobettersupply-demandfundamentalsHowevertier-3and4citiesmaycontinuetoseeweakdemandFigure19Mobilityindicatorsintier-1citiesFigure20HouseholdincomerentgrowthIndex7DMAMillions7DMAYoY2YrCAGRfor202110194581840617354163015225140201322017201820192020202120221512410116510809010202020212022UrbanhouseholdincomepercapitaDailytrafficcongestionindexLHSRuralmigrantworkerswageDailysubwaypassengerflowRHSUrbanhousingrentSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesFigure21householdsavingrateconfidenceFigure22LaborparticipationrateindexLaborParticipation46566559344546442592526340591385062593648613460589463259588304420182019202020212022201720182019202020212022HouseholdSavingRateLHSJapanLHSSouthKoreaLHSIncomeConfidenceIndexRHSUSALHSChineseTaipeiRHSSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1323Dec2022Figure23PBOCpolicyratesFigure24China2YtreasuryyieldcoreCPIgrowth504454033530225201151020192020202120220PBOC7DreverserepoDR00711YLPR2016201720182019202020212022CoreCPIGrowth2YTreasuryYield5YLPRSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesFigure25ChinascreditandM2growthFigure26ChinasbroadfiscaldeficitYoY178167156145134123112101908720162018201920202021201620172018201920202021202220172023FLocalgovernmentspecialbondquota2022FTSFoutstandingRMBloanM2GeneralfiscaldeficitSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesFigure27US-Sino1YspreadUSDRMBratesFigure28ChinaspropertymarketpptUSRMBYoY2YrCAGRfor2021175504030201017010203036540506070562018201920202021202220082010201220142016201820202022GFAsoldGFAstartedUS-Sino1YT-bondspreadLHSUSRMBratesRHSLandareapurchasedASPSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1423Dec2022Figure29ChinasurbanpopulationGFAsoldFigure30populationmixpropertyinvestmentofGDPoftotalpopulation147612747210708686664642620602001199920032004200620082009201120132014201620182019202120232024202620282029PropertydevelopmentinvestmentexcludinglandpurchaseLHSPopulationaged15-64RHSSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1523Dec20222023MarketOutlookStrategyStrategistDanielSoCFAdanielsocmbicomhkHSItarget23500GrowthstockspreferredAstheworldslargesteconomytheUSseconomiccyclemonetarypolicyandstockmarketperformancehavealwaysbeeninfluencingglobalfinancialmarketsThereforewefirstcomprehensivelyanalysetheimpactontheUSstocksandglobalstockmarketsfromthemacroperspectivesoftheUSeconomycorporateprofitsinterestratespresidentialcycleandrelativevaluationofstocksandbondsUSstockmarketexpectedtoimproveafterFedratespeakTheeconomyandcorporateearningsareexpectedtobeunfavourablefortheperformanceoftheUSstocksinthefirsthalfof2023Weforecastamild-to-moderaterecessionintheUSeconomyin2023andcorporateearningsforecastswouldbereviseddownbythemarketHowevertheinterestratecycleisexpectedtostartturningmorefavourableforUSstocksinmid-2023InthepasthalfcenturytherehavebeenatotalofteninterestratehikecyclesintheUSincludingthecurrentonefromMar2022sevenofwhichsawtheUSeconomyfallintorecessionaroundthepeakofinterestratesFig31GenerallyspeakinginthefirsthalfoftheratehikecycletheinterestrateleveldidnotposearecessionriskandthestockmarketdidnotperformtoobadlyButinthesecondhalfoftheratehikecycleeconomicgrowthhassloweddownsignificantlyandtheperformanceofthestockmarkethasoftenbeenweakConverselyinthe12monthsafterinterestratespeakstocksperformanceusuallyimprovesInthepreviousnineinterestratehikecyclesonlytwodidnotfollowthispatternmarkedingreyinFig32Figure31USstocksvsUSFedfundsateSourceBloombergCMBIGMPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1623Dec2022AccordingtointerestratefuturesthemarketpredictsthatthisroundofinterestratehikesintheUSwillendinMay2023AccordingtohistoricalpatternsaftertheinterestratepeaksthistimetheperformanceofUSstocksisalsoexpectedtoimproveHoweversincethecurrentinflationintheUSisthehighestsincetheearly1980seveniftheinterestratepeaksinMaynextyeardependingontheextentofthefallininflationbythentheFedmaymaintaininterestratesatarelativelyhighlevelforalongperiodoftimetoacertainextentcappingtheperformanceofstocksFigure32SP500sreturnsbeforeandaftertheFedfundsratepeakedWhenFed12-monthreturns12-monthreturnsfundsrateBEFOREFedAFTERFedfundspeakedfundsratepeakedratepeakedMay1974-16844Mar198005332May1981192-156Aug198414132Apr198979149Feb199543314May200035-116Jun200666184Dec2018-62289Average23130May2023-13ImpliedbyinterestratefuturesReturnsinJun-Nov2022SourceBloombergCMBIGMUSStocksPerformBestinThirdYearofPresidentialCycleTheUSPresidentservesafour-yearterm2023isthethirdyearofJoeBidenspresidencyTrackrecordsshowthattheUSstockmarketusuallyperformsbetterinthethirdyearofthepresidencySince1928theaverageannualreturnoftheSP500hasbeen77simpleaverageexcludingdividendsThestockmarketperformsbestinthethirdyearofthetermwithanaveragereturnof135whilethesecondyearietheyearofthemid-termelectionsistheworstwithanaveragereturnof35Fig33AplausibleexplanationfortheabovephenomenonisthatthePresidentsinordertowinre-electionforhimselforhispoliticalpartytendstointroducemorefiscalstimulusandencourageaccommodativemonetarypolicyinthesecondhalfofhisterminordertocreateapositiveeconomicenvironmentRelativelyspeakinginthefirsthalfofhistermPresidentsaremoretolerantofeconomicweaknessTheperformanceofHongKongstocksisalsosimilartothatoftheUSstocksAfterallHongKongseconomymonetarypolicyandstockmarkethavealwaysbeengreatlyinfluencedbytheUSSincethelaunchoftheHangSengIndexin1964theaverageannualreturnhasbeen162ReturnshavebeenthebestinthethirdyearoftheUSpresidentialtermaveraging297TheworstperformanceisintheUSmid-termelectionyearwithanaveragereturnof-26PLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1723Dec2022Figure33AverageannualreturnsinPresidentialcyclesSP500HSIPresidentialterms1styears66111Mid-termelectionyears35-26Presidentialterms3rdyears135297Presidentialelectionyears75282Averageofallyears77162SourceBloombergCMBIGMSince1928Since1965ValuationattractivenessofUSstocksrelativetoUSbondshasfallenDuring2009-2015and2020-2021USinterestratesareclosetozeroandthusthegapbetweenUSstockearningsyieldandtheUS10-yearTreasuryyieldatahistoricallyhighlevelmakingstocksmoreattractiveHoweverastheFederalReservehasraisedinterestratessharplyinthepastyearthemarketexpectstheFedfundsratetorisetoabout49aroundMartoMay2023TheUS10-yearTreasuryyieldhassurgedfrom06inApr2020tothecurrent35theattractivenessofUSbondsrelativetoUSstockshasrisentothehighestlevelsincethebeginningofzerointerestratesin2009Fig34showsthatthegapbetweentheearningsyieldofUSstocksandtheTreasuryyieldhasfallentothesmallestsincetheendof2009returningtoamorenormallevelbeforethezerointerestrateeraInotherwordsalthoughUSinterestratesareexpectedtopeakinmid-2023andthereisapossibilityofasmallratecutinthesecondhalfoftheyearwhichwillincreasehotmoneyinthemarketconsideringtherelativevaluationsofbondsandstockshotmoneymaynotnecessarilyflowtothestockmarketUSbondsmayoutperformUSstocksinthefirsthalfoftheyearbringingthevaluationofUSstocksrelativetoUSbondsbacktoamoreattractivelevelandthenUSstocksareexpectedtooutperformUSbondsinthesecondhalfoftheyearFigure34SP500searningsyieldUST10-yearyieldSourceBloombergCMBIGMPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1823Dec2022USDweakeningbodeswellforEmergingMarketsUSDdroppedbelowuptrendasFedtighteningcyclesnearinganendTheUSFederalReservestartedthecurrentinterestratehikecycleinMar2022andhasraisedinterestratesby375bytheendofNovInterestratefuturesimplythattheFedfundsratewillpeakataround49inMay2023withonlyapotentialincreaseofabout1fromthecurrentlevelwhichmeansthattheinterestratehikecycleisnearinganendTheaggressivepaceofinterestratehikeshasdriventheUSDindexupby24inthefirst10monthsof2022NowthattheinterestratehikecycleisexpectedtobecomingtoanendthetrendoftheUSDhasshownsignsofweakeningTheUSDindexfellbelowanuptrendinmid-Novfallingmorethan7fromthepeakattheendofSepanditseemstomovinginadownwardchannelinsteadFig35Figure35USDIndexdroppedbelowanuptrendforminganewdownwardchannelSourceBloombergCMBIGMEmergingMarketCurrencyIndexbrokeadowntrendSincemanyemergingcountriesholdUSDbondsthesharpappreciationoftheUSDoftencausessomeemergingcountriestofacefinancialpressurecurrencydepreciationcapitaloutflowsandevendebtcrisesOnthecontrarywhentheUSDdepreciatesemergingmarketshaveagreaterchanceofenjoyingcapitalinflowsandcurrencyappreciationThetrendofEMcurrenciesagainsttheUSDcanalsoberegardedasoneoftheindicatorsfortrackingfundflowsMSCIEmergingMarketCurrencyIndexbrokeadowntrendinNov2022Fig36aroundthetimewhentheUSDIndexdroppedbelowanuptrendPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE19