Hong Kong equity funds recorded US$347m in early February

Heaviest weekly inflows in almost six months.

It has been noted that Hong Kong equity funds also recorded sizable inflows of US$347m from February 5 to 11.

According to a research note from CCB International, this was the heaviest weekly inflows in almost six months.

Meanwhile, from 5 to 11 February, Chinese equity funds saw heavy inflows of US$1.62b, marking the biggest weekly inflows since July 2014.

Here's more from CCB International:

China: distorted January data; nevertheless, a sharp turnaround unlikely in February - China’s January CPI and PPI both surprised to the downside with the weakest readings in over five years. CPI inflation slid to 0.8% YoY in January (December: 1.5%), led by a slowdown in food prices.

Non-food inflation slowed to 0.6% YoY in January (December: 0.8%) on falling energy prices. Excluding food and energy, core inflation slowed to 1.2% YoY in January from 1.3% the previous month, making January the sixth month of continuous slowing.

More concerning, PPI deflation accelerated to 4.3% YoY (December: 3.3%) on steadily declining mining and raw materials prices.

Earlier, China’s January trade growth disappointed as the trade surplus hit a record high of US$60.0b on sluggish domestic demand. Breaking it down, imports fell 19.9% YoY in January, marking the biggest fall since May 2009, while exports declined 3.3% YoY versus a 9.7% increase in December 2014.

Our view: Chinese New Year tends to distort China’s macro readings for January and February. But even
accounting for the distortion, January data was disappointing and suggests to us that domestic demand is weak.

We do not expect a quick turnaround in trade growth given the fall in processing imports coupled with the
decline in trade-related components within the NBS Manufacturing PMI. Furthermore, confirmation of rising
disinflation points to increasing real interest rates, which could provide additional grounds for an interest rate cut.

Our base forecast is for an interest rate cut around Chinese New Year and an RRR cut as early as March 2015.