Golden Week Holiday Puts A Dim Shine On China's Recovery Prospects

China's national Golden Week Holiday at the start of October provided a bit of a boost to spending but fell short of government expectations. 

Stocks were subdued in China and Hong Kong Monday following a week-long holiday on the mainland after consumer spending and home sales data roiled markets and Hamas terrorists attacked Israel over the weekend.  

In Hong Kong, the Hang Seng Index closed 0.18% higher at 17,517.40 after shares were suspended in the morning session due to a typhoon while in Shanghai, the CSI 300 Index was 0.13% lower at 3,684.74.

The Chinese government had hoped the National Golden Week holiday would result in 900 million additional trips bringing in an added 782.5 billion RMB ($107.4 billion) in sales. This target was slightly missed, with the week seeing just 826 million domestic trips generate 753.4 billion RMB in additional revenue. Still, sales were double those in the previous year and 1.5% higher than in 2019, before the mainland went into a multi-year Covid-19 lockdown phase.

Property sales in China’s 35 largest cities fell 17% during the holiday week vs. the same period last year, while existing home sales were down 8%. Among the leading 22 cities in China, new home sales during the holiday season dropped 31% while existing home sales plunged 84% vs. the average number of sales recorded in a week of September, according to CRIC, the country’s regulator.  

Goldman Sachs Group Inc. GS said in a note that China’s government would likely continue a policy of credit easing in order to stimulate the economy further. It indicated that while a recovery was on the way for China, it would be protracted. Other analysts concurred. 

“A housing recovery will take longer than in previous down cycles,” Chen Wenjing, associate research director at China Index Holdings, told Bloomberg.

“If more easing measures can be rolled out in the near future, the home market will probably bottom out in the first half of next year,” Chen said.

Among property developers, Chinese business newswire Cailian reported that Country Garden Holdings Limited CTRYY may announce a debt restructuring plan this week and Hysan Development Company Limited HYSNY published a prospectus for a $4 billion debt offering.

Not at all investors were as pessimistic about China's economy, however. South China Morning Post reported that $12 billion fund manager Mathews International Capital Management is buying Chinese stocks again. The paper quoted fund strategist Andy Rothman as pointing to the MSCI China Index as attractive at a P/E ratio average of 11.44x earnings, a five year low.

“Sure, there are structural issues in China like local government debt, the property market and the demographics,” Rothman told SCMP. “But that is very different than saying these are going to cause a crisis or collapse.”

China Evergrande’s EV spin-off China Evergrande New Energy Vehicle Group Limited EVGRF dropped 9% after a trading suspension imposed on the shares at the end of September was lifted. Nikkei reported that company said is trying to renegotiate terms of an outstanding debt tranche held by an investor from the United Arab Emirates (UAE).

Among other EV names, XPeng Inc XPEV tumbled 3%, Li Auto Inc LI was down 0.89% and NIO Inc. NIO ended the day 1.3% lower. BYD Company Limited BYDDY was 0.5% higher after reporting strong sales for the new premium edition of its Yangweng U8 model at the end of September. The company expects to start delivering over 4,000 models which sold for over 1 million RMB as early as this month, it said.