China: M2 strengthens on household loans – Nomura

Research Team at Nomura, notes that China’s M2 growth rose to 11.4% y-o-y in August from 10.2% in July, much higher than expected (Consensus: 10.5%; Nomura: 9.9%) and is likely to remain strong in September and then fade in Q4.

Key Quotes

“Aggregate finance rebounded significantly to RMB1.47trn in August from RMB487.9bn in July, much stronger than expected (Consensus: RMB900bn; Nomura: RMB950bn), resulting in faster growth of 12.3% y-o-y in stock outstanding. On a broader basis, growth in augmented aggregate finance (i.e., aggregate finance + local government bonds) accelerated by 0.3 percentage points (pp) to 16.7% y-o-y in August. The upside surprise mainly came from new increased loans and a much smaller decrease in bankers’ acceptance bills.

Credit expansion was largely driven by household loans, consistent with the rebound in retail sales and strong property sales in August. Total new RMB loans jumped to RMB948.7bn from RMB463.6bn in July, much higher than expected (Consensus: RMB750bn; Nomura: RMB700bn), with growth in RMB loans outstanding up 0.1 percentage point (pp) to 13.0% y-o-y.

New corporate loans remained weak, suggesting investment demand is still lacklustre. New loans to the corporate sector rose to RMB120.9bn in August after -RMB2.6bn in July, but still much lower than the monthly average of RMB755bn in H1.

Strong credit and M2 growth may continue into September, as retail sales, particularly auto sales driven by post-flood purchases, may continue into September. However, momentum is unlikely to last long and will fade in Q4, in our view.

We expect M2 growth and loan expansion to turn weaker again in Q4 and maintain our policy call of one 25bp benchmark interest rate cut and one 50bp RRR cut for the remainder of 2016.”