To The Moon

The Hang Seng Index remains a notable underperformer in Asian this month, declining 7.3% month-to-date, a stark contrast to the positive returns in the Nikkei225, Straits Times Index and TAIEX Index

The market has been dragged lower by the H-shares which according to Bloomberg, entered into bear market territory yesterday after falling 20% from its October 2025 peak, weighed down by Tencent and Alibaba

Chinese tech shares are also seeing renewed pressure on e-commerce names from the regulators

The 6.18 shopping festival was reportedly the quietest in its history, with online sales slowing to just 4% (CNBC), compounding longstanding concerns about the muted consumer activity in China

Macquarie Sales and Trading’s (S&T) released a note yesterday on 23 June 2026 addressing the question on whether the Chinese government would pivot and step in to boost consumption like they did in 2024

Read on for important disclaimers

The below communication has been prepared by Sales and Trading (S&T) Personnel at Macquarie and is not a product of the Macquarie Research Department. For important disclosures relating to this communication, please see: www.macquarie.com/salesandtradingdisclaimer

Summary: After a sharp slowdown in 2Q, we expect growth momentum to re accelerate in 2H26, as Beijing steps up policy support to meet this year’s growth target of 4.5–5%. That said, a 2024-style pivot is unlikely in the next couple of months, as policymakers still have time to adjust policy.

Incoming data indicate that China’s economy will likely slow from 5.0% yoy in 1Q26 to about 4.4% in 2Q26. In the first half of 2024, GDP growth also slowed by 0.7ppt, from 5.3% yoy in 1Q24 to 4.6% in 2Q24. (Fig 1)

As in 2024, sentiment has become increasingly negative regarding China's domestic demand. On 24 September 2024, policymakers made a clear policy pivot that triggered a strong market rally. The key question now is: given the slowdown like 2024, will Beijing also pivot like 2024?

Three lessons from 2024

1. Beijing has both the capacity and the will to achieve the growth target

Before the 2024 pivot, market sentiment was extremely gloomy. The most common investor questions were: (1) Does Beijing still have effective policy tools? and (2) Is it too little, too late? The strong rally that followed the pivot quickly dispelled those doubts.

2. Beijing can pivot at any time

Policymakers do not need to wait for regular gatherings such as the Politburo meetings; they can announce major policy shifts at any time.

3. Beijing follows the "Just Enough" rule

Policymakers tend to do just enough to achieve the growth target. In 2024, prior to the pivot, many analysts feared policymakers would miss the growth target. After the pivot, many expected a major stimulus package. In the end, Beijing delivered only the amount of support needed to hit the 5% growth target.

The implications for 2026: Growth likely accelerates in 2H

S&T expects Beijing to adhere to the “Just Enough” rule, doing only what is necessary to achieve this year’s growth target of 4.5–5%. S&T therefore maintains their full-year GDP forecast of 4.7% despite the sharp slowdown in 2Q26.

The 2Q slowdown also reflects the "Just Enough" rule. After China posted 5.0% year-on-year (yoy) growth in 1Q26, the April Politburo meeting described the beginning of the year as “better than expected”, and the tone turned clearly less dovish than at the Politburo meeting in Dec 2025.

• With the shift in policy tone, policymakers tapered fiscal spending in 2Q. In April-May, broad fiscal spending (the official budget plus government funds) declined by 6% yoy, following 3% growth in 1Q26. (Fig 2)

The subsequent slowdown suggests that Beijing's optimism in April was premature. As growth momentum weakens, policymakers are likely to step up support in the coming months to ensure the annual target is met. In fact, local governments have already ramped up special bond issuance in June to RMB496bn, the highest monthly level since last Aug. S&T expects the next Politburo meeting in late July to adopt a more supportive stance.

For investors, this means it is problematic to extrapolate 2Q weakness into 2H.

A 2024-style pivot is unlikely in the next couple of months

S&T sees three reasons why a 2024 style pivot is unlikely in the near term:

1. Even if 2Q growth slows to around 4.4% yoy, China’s economy would still expand by 4.7% in 1H26. For policymakers, it does not appear overly challenging to achieve the full-year target.

2. The year is only halfway through, leaving ample time for incremental policy adjustments in 2H26. Beijing can afford to wait for more data before deploying stronger measures.

3. High oil prices caused demand destruction in 1H26, as about 60% of the slowdown in industrial production from 1Q to 2Q26 was concentrated in the oil supply chain. With the US and Iran reportedly moving toward a final deal, Beijing may prefer to wait for greater clarity on the external environment.

On Sep 14, 2024, ten days before the pivot, S&T wrote that "the working assumption remains that policymakers will anchor their policy reactions with the 5% real GDP growth target...further policy support may be announced soon, such as cuts in policy rate/existing mortgage rate/RRR; faster fiscal spending and more property loosening in big cities...These policies may lead to a modest growth acceleration in 4Q24, bringing the annual GDP growth back to around 5%. But they are not the bazooka needed to end deflation and stabilize housing"

A similar logic applies today. The only difference is that, with six months still remaining in 2026, policymakers may not yet feel the same urgency as in late 2024.

When will consumption strengthen?

​​​​​​​From an investor’s perspective, the main concern in the May data is consumption. In year-on-year terms, retail sales fell for the first time since 4Q22.

This consumption weakness is consistent with S&T’s view that China consumption and the AI boom are negatively correlated. Given the “Just Enough” rule, an AI-led export boom has reduced the urgency to boost domestic consumption.

Looking ahead, consumption in 2H26 will depend heavily on the AI capex cycle:

• If the AI capex boom remains strong, Beijing will likely continue to ride the export wave and consumption will stay soft.

• If the AI capex cycle falters, Beijing will step up domestic stimulus accordingly, leading to a more meaningful improvement in consumption.

​​​​​​​The key to a sustainable consumption recovery is housing. S&T has been cautious about the recent housing rebound, as it's hard to reverse the pessimistic expectations.

To make housing to bottom out quickly, policymakers may need to adopt “unconventional measures,” involving large-scale government funding injections into the housing market. But they don’t want to do so as long as exports remain strong.

In short, consumption is weak not because policymakers cannot boost it, but because, under the “Just Enough” rule, they do not need to.

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