EM ASIA CREDIT: Alibaba: AI infrastructure spend rising

Retail sales volumes rose 0.5% q/q in Q2, which was stronger than expected. Westpac notes that while conditions for the sector remain tough, there are signs of a “long-awaited recovery”. Real sales grew 2.3% y/y after 0.7%. Core real sales were stronger than the headline rising 0.7% q/q after 0.4%. Westpac is currently forecasting a flat Q2 GDP print on September 18 but will review its forecast after other quarterly data releases.

• Westpac is optimistic regarding the consumption outlook noting that “spending levels are already pushing higher, and the full impact of the large reductions in interest rates over the past year is yet to be felt”.
• “Over the coming months, increasing numbers of borrowers will be rolling on to lower borrowing rates. The related lift in disposable incomes could be sizeable in some cases, and that’s set to boost spending through the latter part of the year.”
• “There are still some headwinds for the retail sector. Most notably, unemployment is likely to rise around to 5.3% before the end of the year.”
• “While the retail sector is still confronting some tough trading conditions, we are starting to see signs that the long-awaited recovery is taking shape. Spending levels have risen for the past three quarters. That includes gains in discretionary areas like recreational goods and electronics. However, it is still a mixed picture with spending in sectors like hospitality still flat.”
• However, “spending growth remains quite modest – the volume of goods sold rose around 2.5% over the past year, compared to gains of around 4.5% per annum before the pandemic”.

Local governments are extending the duration of their guidance funds to more than 15 years to support technology innovation firms better, China Securities Journal reported. Anhui province said well-performing mother funds may be extended to 20 years with approval, while Shanxi capped mother funds at 20 years and sub-funds at 15. The moves follow a State Council statement earlier this year urging local authorities to raise their risk tolerance in start-up investment by boosting government investment ratios, easing duration limits and lengthening performance evaluation cycles, the paper said.

The A-share market is expected to move towards a more sustainable "slow bull" pattern amid industrial upgrading, emerging technological breakthroughs, improved capital market systems and further retail participation against the backdrop of declining risk-free rates, China Fund News reported citing analysts. In the short term, with the indexes breaking through key resistance levels, the performance of the capital market has clearly outpaced the fundamentals, and investors need to be wary of fluctuations caused by trading congestion and uncertainty in the effectiveness of policy implementation, analysts said.