China: Expect a slowdown in Q4 - Nomura

Research Team at Nomura, has raised their 2016 annual growth forecast but left their Q4 forecast unchanged.

Key Quotes

“Real GDP growth of 6.7% y-o-y in Q3 was unchanged from H1 and in line with market expectations (Consensus: 6.7%; Nomura: 6.4%), while quarter-on-quarter growth edged down by 0.1 percentage points (pp) to 1.8%.

By industry, output growth of the tertiary sector accelerated to 7.6% y-o-y ytd in Q3 from 7.5% in Q2. We believe this reflects the impact of the stock market’s low base (the market collapse started in Q3 2015), the boost from the overheated property market and was also possibly due to enhanced efforts by the National Bureau of Statistics on data collection in the services sector. The data details to be released later this month should provide more clarity.

We have raised our 2016 real GDP growth forecast to 6.6% from 6.5%, given Q3 growth was stronger than we expected. We have also revised our quarterly and/or annual forecasts for investment, consumption, trade and credit supply, accordingly, based on the Q1-Q3 data released so far.

However, we maintain our Q4 GDP growth forecast of 6.4% y-o-y, as September data show tentative signs of growth momentum losing steam.

Resilient Q3 growth provides support to our policy call of cuts to neither the reserve requirement ratio (RRR) nor interest rates over the rest of this year.

Rates strategy: We remain positive on high grade bonds such as CGBs in the 5-10y tenor. On swaps, we recommend 1s5s and 2s5s flatteners, with a view to add outright receives at better levels.”