MY Midday Insights | WEAK SADDROP AHEAD, KLCI DROP 1.69 POINTS

The Fed's hawkish minutes continued to drag down the trend of US stocks, and the market also rumored that China would sell the US dollar to support the renminbi, heightening investors' risk aversion. Asian stocks generally continued to fall on Friday.

Horse stocks are also following the pace of the market. Coupled with economic growth data for the second quarter not being as good as expected, the intraday trend is slowly moving southward.

The half-day turnover was 1,835 million shares, with a transaction value of RM948 million.

The FTSE Malaysia All Stock Index closed at 10660.20 points, down 19.37 points.

There were 268 rising stocks, 516 falling stocks, 702 had no ups and downs, and 862 had no transactions.

The US dollar weakened slightly. As of 12:30 noon, the exchange rate of the ringgit was 4.6445 to 1 US dollar.

China's economy showed fatigue. The gross domestic product (GDP) in the second quarter grew by only 2.9% year-on-year, far lower than the 5.6% increase in the first quarter, and not as good as market expectations.

China's economy in the second quarter was mainly contributed by the service sector (4.7% increase) and the construction sector (6.2%), but both contributions were lower than the performance of the first quarter.

Global demand weakened, and growth in the manufacturing sector was weak, at just 0.1%. The agriculture (-1.1%) and mining sectors (-2.3%) declined further in the second quarter of this year.

Considering the poor global economic environment and the high base effect formed last year, economists generally underestimate China's economic performance for the second quarter. According to Bloomberg statistics, the median estimate of economists is 3.6%; however, the results are still significantly lower than expected.

On the other hand, trade data for July released by the Malaysian Bureau of Statistics today also showed a weak trend. Among them, exports shrunk 13.1% year-on-year to RM116.75 billion; while imports fell 15.9% to RM99.66 billion.

China's economic performance in the second quarter was not ideal, and trade performance in July was still sluggish. Economists expect that the downward cycle has not yet bottomed out, and that the economic performance in the third quarter may be worse.

China's trade data for July released by the Malaysian Bureau of Statistics today shows that China's trade performance also continues to be affected by weak global demand. Exports have shrunk 13.1% year over year to RM116.75 billion; while imports have declined 15.9% to RM99.66 billion.

Li Xingyu, executive director of the China General Socioeconomic Research Center, said that current data shows that China is clearly in a downward economic cycle.

“The decline in external demand has led to a slowdown in manufacturing, which has already had an impact on private consumption. However, China's economy is seriously below expectations, which also has a negative impact on our economy.”

He further pointed out that the explosive 14.1% economic growth in the third quarter of last year also allowed China to continue to face high base effects in the latest quarter.

“So my predictions are rather conservative. I think the third quarter is probably the lowest point, lower than the 2.9% of the next quarter.”

He went on to point out that if China's economic performance in the third quarter still hasn't improved, then reaching the target of at least 4% growth for the whole of this year is “challenging.”

Although the economic outlook is full of challenges, Li Xingyu believes that it is appropriate for the State Bank to maintain a standstill attitude towards monetary policy at present.

He believes that judging from the current situation, the Bank of China can wait for the economic data for the third quarter to be released before moderately adjusting the interest rate policy.

“If the data for the third quarter is poor, then the Bank of China will be pressured to cut interest rates. But for now, it's better to stay on guard.”

In July of this year, China's exports shrank by 13.1% year-on-year to RM116.75 billion; while imports fell 15.9% to RM99.66 billion.

This reduced China's total trade volume in July by 14.4% compared to the same period last year, to only RM216.41 billion.

Last month, China's trade data for major trading partners such as Southeast Asia, China, the US, Europe, and Japan all shrunk.

However, exports to both China and the US have increased.

In terms of export commodities, exports of electronic and electrical products increased by 7.3%, but exports of other types of goods fell across the board, causing exports to fall.

On a monthly basis, exports in July fell by 5.8% compared to June; total trade also fell by 2.7%.

China recorded a trade surplus of RM17.09 billion in July. This is the 39th month in a row that China has reaped a trade surplus.

The move could protect US assets while the company makes restructuring arrangements elsewhere. Evergrande's Chapter 15 application documents refer to ongoing restructuring procedures in Hong Kong and the Cayman Islands.

Sometimes international debt restructuring transactions require an application for Chapter 15 of the Bankruptcy Code when finalizing a transaction. Last year, Beijing-based developer Contemporary Real Estate also filed a Chapter 15 bankruptcy application after failing to repay the $250 million bond, and stated that it would proceed with the offshore debt restructuring process.

Evergrande's fate has had a far-reaching impact on China's $60 trillion financial system, and is likely to have a ripple effect among banks, trusts, and millions of homeowners. This will be one of the biggest restructuring in China's history. Its debt of more than 300 billion dollars means that this process will definitely be a long one.

The overall sentiment in the Chinese market was shaken after Country Garden, one of China's biggest real estate developers, may have defaulted for the first time this month. The situation worsened even more after Zhongzhi Enterprise Group recently warned that some of its affiliated companies' investment products were overpaid.

China's real estate debt crisis is rapidly deepening and has entered its fourth year. Developers who are used to driving the development boom by borrowing money experienced their first change in 2020.

At the time, the government established “three red lines”. If developers want to borrow more money, they must meet some leverage benchmarks. According to a Bloomberg index, Chinese junk dollar bonds, which are mainly issued by developers, are already in trouble. Currently, the average price is about 65 cents per dollar purchased.

Evergrande has been working hard to complete the offshore debt restructuring plan for several months. The company said in April that the overseas debt restructuring agreement was not supported by sufficient creditors. In July, Evergrande received court approval to vote on the debt plan. The company said earlier this week that it had decided to postpone the agreement arrangement meeting until August 28.

Evergrande's bankruptcy attorneys did not immediately respond to requests for comment. Its subsidiary Jingjing and its affiliated company, Spacji, also applied for Chapter 15 protection.

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