Modest policy support
While Beijing should deliver modest support, we do not project dramatic policy-driven rallies. The Rmb2tn tax cut in 2019 has left authorities with limited room for further sizeable tax deductions. Instead, special-purpose bonds may become the primary instrument to counter downside risk. In addition to traditional financial support, quasi-fiscal tools could also come into play to support shanty-town redevelopment projects and other high-quality property projects. We forecast the central bank to maintain a sound tone and cut the medium-term lending facility (MLF) rate twice in 2020. Moreover, China will begin to develop the 14th Five-Year-Plan next year, laying the groundwork for more structural reforms.
Foreign A-share holdings are still at a relatively low level compared to overseas markets. Low A-share weightings and interest rates globally are the key factors attracting more overseas inflows in 2020, especially in undervalued sectors.