China’s NPC meeting: What to expect and key levels for the Hang Seng Index

China’s NPC meeting in focus next week

China's top legislature, the 14th NPC Standing Committee (NPCSC), will convene for its twelfth session from 4-8 November 2024, the week of the US presidential election.

Why is the meeting important?

Weak economic conditions have forced Chinese authorities into rescue mode lately, as time is running short for them to meet their 5% gross domestic product (GDP) growth target this year.

China’s Q3 GDP pointed to a 4.6% year-on-year expansion, marking the slowest annual growth rate since Q1 2023. The International Monetary Fund (IMF) also projected China’s economy to grow by 4.8% this year, falling short of its 5% target.

This seems to raise the pressures for a final year-end push by Chinese authorities, following policymakers’ assertions that they are "fully confident" of achieving the growth target. President Xi Jinping has also issued an “all-out” rallying call to officials.

We believe any failure to meet the target may affect market confidence in policymakers’ ability to support the economy and reflect an arduous task in navigating the property sector crisis and weak consumer spending, which may in turn impact risk-taking in Chinese equities.

What’s next?

In September this year, China authorities launched a series of economic measures to stabilise its economy, which includes lowering interest rates, cut to mortgage rates for existing homeowners and reducing the reserve requirement ratio (RRR) for banks by 0.5%.

While monetary measures may further support liquidity, the limited success of previous measures thus far suggests that they may not be enough to drive broad economic recovery. Markets are thus hoping for more fiscal policies to further stabilise sectors like the housing and consumer markets, with more clarity to be sought from the NPC meeting.

What to expect at the upcoming meeting?

Thus far, the published agenda stopped short of mentioning specifically about fiscal policies, but an October press conference by the Ministry of Finance seems to suggest that several fiscal measures aimed at stimulating China’s economy are in the works.

A Reuters report states that China is weighing approving over 10 trillion yuan in additional borrowing in the coming years. The headline figure may seem huge (analysts were expecting 2 - 4 trillion yuan, 2008 crisis was a 4 trillion spending package), but given that the amount is focused on helping local authorities resolve their off-balance-sheet debt and fund regional governments’ purchases of idle land and properties, the actual fiscal impact on the economy remains questionable.

The measures appear to focus more on preventing further economic decline, rather than catalysing a stronger growth recovery, which may not be enough to revive confidence in China’s economy just yet. Markets still hope to see more direct demand stimulus targeting consumption in the upcoming meeting.

Of course, there is a possibility that authorities are waiting to see who is on the US presidential seat, before committing to more direct stimulus to counter any economic pressures from US policies. Areas of focus on watch may be around boosting technology and innovation, support for retail and services to enhance spending, environmental green initiatives, infrastructure projects, along with health and education. Any additional follow-through for more direct stimulus may be well-received and help to revive traction for Chinese equities. The risks come with any vagueness or lack of clarity around upcoming plans, with much of market attention to be on the details.

Hang Seng Index (HSI): Near-term consolidation phase reflects indecision

The HSI has been locked in a near-term consolidation, with much indecision in place for more fiscal clarity, as reflected in its flat-lined daily relative strength index (RSI). Following recent profit-taking, buyers are attempting to stabilise around the 20,300 level, where a Fibonacci retracement level stands.

Failure for the 20,300 level to hold following any disappointment at the upcoming NPC meeting could call for a further retracement towards the next Fibonacci level at 19,500. On the upside, we may need to see a move back above the 21,200 level to reflect an upward break of the near-term range, which may then offer more conviction of a wider recovery in place.