SMM News: the April economic activity data disclosed by the National Bureau of Statistics showed that due to the higher base and the value-added tax reduction before and after the value-added tax cut, "robbing production" has some distortion to the industrial growth rate, the industrial added value growth rate dropped sharply to 5.4% in April; The nominal growth rate of total retail sales of consumer goods dropped significantly to 7.2%, while investment in the manufacturing sector weakened, while investment in real estate remained steady. Looking ahead, we expect consumption growth to pick up in May and industrial production to remain stable.
Industrial production growth slowed sharply to 5.4 per cent in April from 8.5 per cent in March, significantly below market expectations of 6.5 per cent.
We think there may be two reasons for the sharp drop in industrial production growth: 1) the jump in industrial production in March was mainly driven by a low base, and the effect ceased to exist in April. 2) the VAT reduction will take effect on April 1, which may cause many enterprises to advance their sales / production activities to March in order to obtain a higher credit. We observed a sharp decline in the production and sales rate of industrial products in April, similar to the situation during the VAT tax reduction period from April to May 2018, when the production and sales rate of industrial products and the growth rate of industrial value added increased significantly before the tax reduction. Both fell back after the tax rate was officially cut in May. Month-on-month growth in industrial production slowed to 0.37 per cent (non-annualised) in April from 1 per cent in March.
By industry, the production growth rate of most middle-stream industries has slowed, only the steel industry growth rate has accelerated; on the other hand, downstream industries such as food manufacturing, medicine and computers and other industries value-added growth rate has increased slightly. Meanwhile, year-on-year growth in electricity production slowed to 3.8 per cent in April from 5.4 per cent in March.
The nominal growth rate of retail sales of consumer goods fell significantly to 7.2 per cent in April from 8.7 per cent in March.
Excluding prices, real retail growth slowed to 5.1 per cent from about 6.5 per cent in March. Car consumption, which accounts for 10 per cent of retail sales, continued to fall in April from a year earlier, but narrowed to 2.1 per cent from 3.1 per cent in March. Most of the optional consumption growth rate significantly retreated from the same period last year, of which the decline in household appliances, clothing, building decoration and mobile phone consumption was the most significant.
On the other hand, food and beverage and medical consumption maintained a strong momentum. Geographically, the year-on-year growth rate of urban / rural areas is + 7.1% and 7.8% respectively, and the consumption growth rate of low-line cities is still better than that of the whole. In terms of sub-channels, online retail sales have maintained rapid growth, and the penetration rate has been further improved. We are optimistic about the new retail leaders with full-channel and multi-scene advantages.
According to the Bureau of Statistics, the decline in consumption growth in April was mainly affected by the number of working days-the Labour Day holiday reduced the number of April holidays by two days compared with the same period last year. Excluding this factor, the Bureau of Statistics estimated that retail sales of consumer goods rose 8.7% in April from a year earlier, the same as in March.
From January to April, the cumulative (FAI) growth rate of nominal fixed asset investment fell to 6.1% from a year earlier, below market expectations.
Nominal FAI growth slowed to 5.7 per cent year-on-year in the April monthly report, down from 6.5 per cent in March. Due to long-term data quality problems, we still recommend that investors do not need to over-interpret the monthly nominal FAI data .
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Investment in real estate development remained steady at 12.1 per cent year-on-year, unchanged from 12.0 per cent last month, and the growth rate of new real estate construction fell slightly to 15.5 per cent from 18.1 per cent in March. On the other hand, year-on-year growth in real estate funding accelerated to 18.6 per cent from 13.0 per cent last month. At the same time, the volume of commercial housing transactions remained stable in April, while the growth rate of transaction volume accelerated, while land transactions continued to weaken-the growth rate of land transaction area continued to decline to-35.4 percent from-31.5 percent in March. The growth rate of land turnover slowed to minus 47.7% from-40% in March. On the other hand, the volume of commercial housing transactions remained low year-on-year growth rate of 1.3%, compared with 1.8% last month; However, the growth rate of commercial housing transactions accelerated to 13.9% from 8.3% last month, probably mainly driven by the acceleration of real estate transactions in first-tier cities.
Looking forward, considering that the supporting effect of land purchase fees on investment is gradually weakening, and the high rate of new start-up growth is likely to fall back (the high growth rate at the beginning of the year was partly due to the backlog of projects started by housing enterprises in the second half of last year), We judge that the investment growth rate will gradually fall back gradually, maintaining the forecast of 5% year-on-year investment growth for the whole year. We expect sales area in May and June to return to negative growth with a significantly higher base in the same period last year, with an overall decline of no more than 5% in the second quarter from a year earlier. The probability of this decline is the deepest decline in the whole year (also the deepest decline in the third-and fourth-tier market), we expect the decline to narrow in the third quarter and is expected to turn positive in the fourth quarter. Maintain the forecast that the area of commercial housing sales for the whole year will fall by 2% compared with the same period last year, and sales will grow by 2% year-on-year.
In addition, the national average price of commercial housing sales rose 8.3% from January to April from a year earlier, and the monthly increase in April was 6.1 percentage points higher than in March to 12.5%. We believe that the cumulative increase in the average national housing prices since the beginning of the year is still within the acceptable scope of policy, which is not enough to trigger an overall tightening on the policy side, at least the current relatively moderate policy window still exists in the second quarter. However, we should pay attention to the fact that some cities and regions where house prices and land prices are rising too fast have already introduced cooling policies (such as the recent sales restriction policy in Suzhou). If house prices continue to accelerate, In the future, under the regulatory framework of "city policy", more cities may introduce policies to prevent the risk of overheating in the market. It is suggested that investors should closely track the changes of house prices and land prices and pay attention to the risks of policy adjustment in the second half of the year (especially in the fourth quarter).
Infrastructure investment grew by 3.0% year-on-year, up from 3.3% in March. Infrastructure investment as a whole is lower than expected, and we believe that the possible reasons are: 1) the growth rate of infrastructure-related fiscal expenditure has slowed month on month; 2) there is still strong supervision over the new debt of the urban investment platform; and 3) the base of the same period last year is still high. We expect infrastructure investment growth to start rising by the middle of the year as the base falls. In addition, we believe that with the gradual recovery of real estate Jian'an investment and the stabilization of infrastructure investment, the fundamentals of the construction industry will remain upward.
Since the beginning of the year, the fundamentals of the construction sector has continued to rise, but the stock price performance has continued to underperform the market, we expect that as the uncertainty of external demand increases, the counter-cyclical construction sector is expected to usher in the valuation repair market. We continue to recommend leading enterprises with sound performance and low valuations.
Year-on-year growth in manufacturing investment fell further to minus 1.2 per cent from 3.3 per cent in March. Manufacturing investment growth tends to lag behind corporate earnings growth, which was still falling in the first quarter of this year. Looking ahead, manufacturing profits are likely to come under pressure again as uncertainty rises in external demand, but value-added tax cuts and a reduction in the burden of social security contributions will have a cushioning effect.
Overall, economic activity data for April were lower than expected. Looking ahead, we expect consumption growth to pick up in May; Industrial production growth has been broadly flat-on the one hand, the distortion caused by "robbing production" before and after the VAT tax cut has receded, but on the other hand, tariff increases may begin to affect industrial production growth.
In a mirror image of March, April's economic activity data fell short of expectations. On the production side, production and sales ahead of the VAT rate cut on April 1 may have led to a slowdown in April growth. On the consumer side, the Labour Day holiday caused the April holiday to be two days less than the same period last year, driving down the year-on-year retail growth in April. We still have confidence in the outlook for consumption growth, especially given that the tax cut in the first quarter was very obvious, with a volume of 2 points of disposable income . On the other hand, rising uncertainty about external demand will also put pressure on industrial production and investment activities in the short term. We believe that there is still plenty of room for fiscal easing to hedge the impact of tariffs on the profits of domestic manufacturing companies.
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