China’s positive property policies and associated implementation challenges

Week Ahead FX outlook:

Investor sentiment have improved in the Asia region, as reflected in rising equity prices, particularly the Hang Seng Index (c. +5% last week, +10% month-to-date in May). This should help provide support for Asian currencies this week. Moreover, policy positives have continued to build in China, with the government rolling out more property support measures to stabilize housing price, stimulate home sales, and reduce the drag from real estate investment.  

Meanwhile, markets have looked past the latest imposition of US tariffs on $18bn of Chinese goods, including semiconductors, EVs, batteries, solar cells, and critical materials. Apart from chips (2025) and non-EV lithium batteries (2026), the rest of the tariff hikes will take effect this year. The direct impact on China’s economy could be contained, given the latest tariffs only affect a very small share of Chinese exports. The risk is that the latest US move could embolden US allies in taking similar moves.  

This week, the US data docket will include the usual weekly indicators such as jobless claims and the University of Michigan sentiment index, as well as the Fed minutes. We expect no major surprises from the minutes, which are likely to show policymakers continue to be in no rush to cut rates. In Asia, the focus will be on whether China will retaliate against Biden’s tariff hikes. Bank Indonesia (22 May) and Bank of Korea (23 May) will also meet this week. We look for both central banks to hold their policy rates unchanged. With the rupiah stabilising, BI is unlikely to raise rates. BI also won’t cut rates to avoid FX volatility. Conditions are still not in place for the BOK to cut rates yet, with inflation still above the 2% central bank target while won weakness could lead to higher imported inflation.

Asian FX has gained on improving sentiment