CITIC Securities: Marginal decline in external demand and extreme typhoon weather are dragging down export performance

The Zhitong Finance App learned that CITIC Securities published a research report saying that recent marginal weakening in external demand, extreme typhoon weather, and a rise in the base figure for the same period last year caused the export growth rate in September to drop 6.3 percentage points from the previous value, and the export chain boom weakened marginally. Looking at the export structure, exports to the European Union and Latin America have declined a lot, and the machinery and transportation equipment, automobile industry chain, and semiconductor industry chain have contributed greatly to the positive export growth rate. On the import side, the import growth rate declined in September compared to the previous month. The main reason was that the domestic manufacturing boom was still at a low level. Looking backwards, continued overseas inventory replenishment will still support export fundamentals in the short term, but the subsequent marginal weakening of the global manufacturing industry may cause the overseas inventory replenishment slope to continue to slow down, compounded by an increase in the export growth rate base at the end of the year. These will cause a certain drag on future export growth.

In September 2024, China's export value (US dollar caliber) rose 2.4% year on year (Wind agreed to increase 5.9%) and 8.7% year on year in August 2024; import value (US dollar caliber) rose 0.3% year on year in September (Wind agreed to increase 1.2%), up 0.5% year on year in August; the trade balance in September was US$81.71 billion, up 8.8% year on year. CITIC Securities comments on this are as follows.

The recent marginal weakening of external demand, extreme typhoon weather, and a rise in the base figure for the same period last year led to a decline in export growth in September. The growth rate of exports to the European Union and Latin America declined a lot. The machinery and transportation equipment, automobile industry chain, and semiconductor industry chain contributed greatly to the export growth rate.

China's export growth rate in September 2024 was 2.4%, down 6.3 percentage points from the August growth rate, and the export chain sentiment has weakened. The year-on-year decline in export growth in September was mainly related to the recent marginal weakening of external demand, extreme typhoon weather, and a rise in the base figure for the same period last year. In September, the global manufacturing PMI index declined from August to 48.8%, and has been below the boom and dry line for three consecutive months. Furthermore, two typhoons landed in the Yangtze River Delta region one after another in September. According to historical experience, the typhoon's impact on exports continued for a long time. After the typhoon, fleet schedules were often postponed, and exports lagged behind.

Looking at the subregions, in September 2024, most of China's export growth to major export destinations declined from the previous month. In September, China's export growth rates to the US, the European Union, ASEAN, Latin America, Africa and Russia were 2.2%, 1.3%, 5.5%, 3.4%, -0.7%, and 16.6%, respectively, with changes of -2.8, -12.1, -3.5, -16.3, -5.2, and 6.2 percentage points from the previous month, respectively. CITIC Securities estimates that exports to ASEAN and Russia contributed greatly to China's export growth rate in September this year, with driving rates reaching 0.8 and 0.5 percentage points respectively.

Looking at the export commodity structure, in September 2024, exports of ships and automobiles, including chassis, integrated circuits, household appliances, automatic data processing equipment and components, and general machinery and equipment grew rapidly, with growth rates of 113.8%, 25.7%, 6.3%, 4.5%, 4.2%, and 2.9%, respectively. According to CITIC Securities estimates, the driving effects of the machinery and transportation equipment, automobile industry chain, and semiconductor industry chain on exports in September were 0.9, 0.7, and 0.5 percentage points, respectively. The overall drag on exports of labor-intensive products increased compared to the previous month, and the year-on-year growth rate of exports of clothing, toys, furniture, footwear, and luggage all declined from previous values.

The import growth rate declined slightly in September compared to the previous month. The main reason was that the domestic manufacturing boom in September was still at a low level.

In September 2024, China's import growth rate was 0.3%, down 0.2 percentage points from the previous value. The domestic manufacturing purchasing managers' index for September, which was announced earlier, recorded 49.8%, 0.4 percentage points lower than the seasonal average for the past five years, indicating that the domestic manufacturing industry is still at a low level. Judging from the structure of imported goods, the most outstanding performance is the semiconductor industry chain. In September 2024, China's imports of automatic data processing equipment and components increased by 72.5% year-on-year, and the growth rate remained high. Furthermore, the monthly growth rate of imports of automatic data processing equipment and components has remained above double digits since October 2023. In September 2024, China's integrated circuit imports increased 11.0% year on year, and the growth rate was also significantly higher than the overall import growth rate. In addition to the semiconductor industry chain, the overall import value and quantity of upstream raw materials maintained a relatively rapid growth rate in September. In terms of import value, imports of natural gas, copper ore, and coal increased by 23.7%, 19.7%, and 8.9% respectively in September; in terms of import volume, imports of natural gas, copper ore, and coal increased by 18.2%, 8.7%, and 12.9% respectively in September.

Looking backwards, continued overseas inventory replenishment will still support export fundamentals in the short term, but the subsequent marginal weakening of the global manufacturing industry may cause the overseas inventory reserve slope to continue to slow down, compounded by an increase in the year-end base. These will cause a certain drag on future export growth.

In July of this year, overall US inventories recorded a year-on-year growth rate of 2.5%, an increase of 0.5 percentage points over the previous value. According to CITIC Securities estimates, as of July of this year, in addition to industries such as professional and commercial equipment and supplies, computer and computer peripherals, electrical and electronic products, hardware, plumbing and heating equipment and supplies, paper and paper products, clothing and clothing fabrics, petroleum and petroleum products, food and related products, beer, wine and distilled spirits, etc., the US furniture and home furnishings industry may also enter the inventory replenishment stage in July. However, the recent marginal decline in the manufacturing boom in the US and Europe may cause the slope of global inventory replenishment to slow marginally in the future. Among them, the US ISM manufacturing PMI index for September recorded 47.2%, the same as the previous value but lower than market expectations of 47.5%. The Eurozone manufacturing PMI index for September recorded 45.0%, down 0.8 percentage points from the previous value. Furthermore, China's export base will continue to rise in the next few months, and the export growth rate will gradually rise above zero in November and December of last year, which will also put some downward pressure on the export growth rate at the end of this year.

Bond market strategy:

In September, China's exports were disrupted by occasional factors such as typhoons and fell short of market expectations. As far as the bond market is concerned, recent market conditions are mainly affected by several meetings before and after the holiday season, the emotional roller coaster driven by market fluctuations, and the seesaw effect on equity bonds. On a fundamental level, with foreign trade data weakening, the short-term focus is on marginal changes in domestic demand, including financial data and the evolution of economic data for the third quarter. Considering that the central bank's clear monetary policy approach and the actual effect of the policy combination on fundamentals remains to be seen, the bond market may still have allocation opportunities after the pullback.

Risk factors:

The recovery in external demand fell short of expectations; geopolitical risks worsened, etc.