BNY Mellon
APAC Exports Shock Coming
Macro data from APAC over the past week showed continued deterioration; bright spots were scarce. While China's August credit data appeared strong on a headline basis – M2 credit growth accelerated further, to 12.2%, and aggregate financing and loans by financial institutions increased by CNY 2430bn and CNY 1250bn, respectively – details suggested the ongoing dilemma of “too much money, too little demand”. Aggregate financing (AF) credit growth, for example, declined further, to 10.5% y/y. This is after accounting for the surprise surge in off-balance-sheet shadow banking activities in entrusted loans and undiscounted banker acceptances, which had been on a deliberate structural decline since 2018. Entrusted loans increased CNY 176bn, the single largest monthly increase since March 2017, while undiscounted bankers acceptances grew by CNY 349bn (see chart). Note that the latter was previously linked to arbitrage manoeuvring.
As we await the latest house price releases for August, medium- to long-term household loans, typically seen as a proxy for mortgages, continued to point to a sluggish recovery in the sector. Households' medium- to long-term loans in August increased by CNY 266bn, just above the CNY 244bn average for the first seven months of the year. At 7.3% y/y, this is the slowest reading since records began in 2015. Tourism revenue declined by 22.8% over the mid-Autumn festival this year compared to a year ago. China's manufacturing PMI registered in the contraction zone for a second consecutive month in August. And exports in August grew just 7.1% y/y, down from 18.0% y/y in July.
Given the weakening growth outlook ahead of the Communist Party's congress beginning on Oct. 16, China is likely to maintain its easing stance, while also ensuring the implementation of the various policy measures announced to stabilise economic growth, employment and prices, including efforts to help developers to finish stalled housing projects.
The growth slowdown in China and the cyclical slowdown of the technology sector do not bode well for key regional exports. Based on the latest available (August) data, South Korea exports resumed their downtrend to 6.6% y/y, with semiconductor exports slowing to 7.8% y/y. Taiwan exports collapsed to 2% y/y from 14.2% y/y in July. Exports slowed in the Philippines, India and Thailand, as well. By contrast, Indonesia and Malaysia posted strong double-digit exports in July, supported by mining and manufacturing.
The slowdown of exports coupled with domestic economies failing to revive also bodes poorly for trade balances. Regional net oil importing countries such as South Korea, Thailand, India, and the Philippines face additional stress from higher import costs.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.