Westpac MNI China Consumer Sentiment Firms Again In July - Overall Confidence Rises Despite Stock Market Correction

Chinese consumers were more upbeat in July, with broad based improvement evident and the pull back in equities having no material impact on overall consumer confidence.
 
The Westpac MNI China Consumer Sentiment Indicator rose 1.9% to 114.5 in July, building on a modest increase in the month before. Sentiment is now roughly back at the level recorded a year ago, just before concerns about the housing market and the economy began to surface. Consumer confidence trended down from that point, culminating in October’s trough. Since then, confidence has generally improved, barring a setback in April, and hasn’t had a negative month since that poor start to Q2.
 
All five components of the headline indicator improved in July, with household finances leading the rise. However, consumers in tier one cities (who are more likely to own shares) were not completely immune to the downturn in stocks over the period, with the Current Personal Finances Indicator for Shanghai and Guangzhou down notably and Beijing also seeing a fall.
 
There was continued improvement in consumers’ assessment of expected business conditions. Business Conditions in One Year was the best performer and now stands above its 12-month average while Business Conditions in Five Years improved modestly. In spite of this, there was a sharp deterioration in the Employment Outlook Indicator which fell to the lowest since February 2009. We ascribe this move to the weak performance of the labour intensive export sector in recent months.
 
The July survey is, in isolation, an extremely valuable experiment regarding the connection between China’s onshore equity market and the collective psyche of “Main Street”. As the survey was in the field during the worst moments of the stunning collapse in the stock market, this was a true test. The conclusion is equally stunning. The majority of consumers didn’t just shrug at the stock market turmoil – they laughed it off.
 
Self-identified investors registered the sharp fall in the equity market via a major turnaround in trailing returns, as well as their future price expectations, with the Stock Market Expectations Indicator falling 12.5% on the month. However, the scale of the move has encouraged investors to argue that the correction has rendered stocks undervalued. The value proposition perhaps explains the relative resilience of stocks in the preferred destination for savings stakes, while bank deposits increased their share, as did the more precautionary motivations for savings.
 
Commenting on the data, MNI Indicators Chief Economist Philip Uglow said, “In spite of the sharp correction in equity prices, consumer confidence posted a further increase in July, consistent with the recent flow of more positive official economic data. Much airtime has focused on the potential negative wealth impact of the stock market correction, but the survey bears out our own view that it will be limited.”
 
Westpac’s Senior International Economist Huw McKay said that “the more positive tone to the survey in recent months has been validated by the improvement in the official data flow over the course of the June quarter. The clear uplift in both business conditions and attitudes towards real estate has given a very useful lead on real economic developments. Regarding the investment and savings nexus, the idea that the housing market may be a beneficiary of the stock price collapse is supported by a lift in the proportion nominating domestic real estate as the wisest place for saving, despite a risk averse tone vis-a-vis the broader investment environment.”