China June trade data shows exports stabilization

June's trade numbers released today were better than expected but they continue to show a benign external demand picture. Exports rose for the first time in four months, up 2.8% y/y.

The rest of June's data would be released later this week, including money supply, total social financing, retail sales, and investment. On Wednesday, we will get Q2 GDP which is seen around 6.8% y/ from 7% in Q1. 

However, the risks lie to the downside given weak investment sentiment and the near 25% collapse in the Shanghai Composite in the past month which is expected to weigh on consumer sentiment. The Shanghai Composite is up nearly 2% in the morning session today, on top of the 10% surge last Thursday and Friday.

A host of measures had failed to stem the sell-off since the peak on 12 June, including rate cuts, relaxing collateral and margin trading rules, and suspending IPOs. The authorities were seemingly set on a 'whatever it takes' approach and three key measures announced last Thursday have had a more dramatic effect. These included 

1) Suspending nearly 50% of the stocks in the Shanghai Composite; 

2) Prohibit selling from key executives, corporate directors, and major shareholders (those with more than 5% stake); and 

3) Ordered government-owned institutions to maintain or increase stock holdings. 

The markets may stabilize near term but this will be at the expense of the move towards greater transparency and free-markets ie to allow market forces to play a bigger role in the economy. It will undermine the credibility and soundness of the regulatory environment and opens up another level of uncertainty for reforms going forward, says Commerzbank.