Chinese stocks, yuan stage late rebound on Politburo pledges

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Chinese stocks, yuan stage late rebound on Politburo pledges

stock :: 2024-12-09 :: source - bloomberg

By Bloomberg News

(Bloomberg) — Chinese stocks listed in Hong Kong rebounded in the final hour of trading as the nation’s top leaders vowed to ease monetary policy and expand fiscal spending.

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The Hang Seng China Enterprises Index (^HSCE) reversed a small drop to end the day 3.1% higher, it’s biggest gain since Oct. 18. The yield on 10-year government bonds slid five basis points to 1.91%, a fresh record low. The offshore yuan erased losses to trade 0.1% stronger versus the dollar.

The Politburo said it will embrace a “moderately loose” strategy for monetary policy in 2025, marking its first major shift in stance since 2011, and also pledged to “stabilize property and stock markets.” The statement gave some investors confidence that authorities are determined to support the economy in the face of growing trade tensions, and delivered an immediate boost to sentiment.

“The readout today also seems to be very proactive, with China looking like it will focus on stabilizing asset prices and stimulating demand,” said Jeremy Yeo, an analyst at SMBC Nikko Securities. “If China talks about tackling deflation more directly this week, that could be a game-changer.”

Currencies closely tied to the Chinese economy also advanced, with the Australian dollar rising 0.8% and New Zealand’s currency up 0.6%.

On the mainland, the CSI 300 Index (000300.SS) of onshore shares ended 0.2% lower before the Politburo announcement.

The Politburo’s December conclave typically sets the agenda for the larger Central Economic Work Conference that crafts priorities for the following year, such as the annual growth goal. That meeting is set to begin on Wednesday, Bloomberg News reported last week.

Investors had been looking to the CEWC to offer stocks another leg up, after a stimulus-driven rally lost steam. The HSCEI gauge has lost more than 11% since staging a near-40% rebound in less than a month through Oct. 7.

Lackluster consumer prices in the latest data confirmed the need for Beijing to ramp up efforts to boost growth. The consumer price index rose a less-than-forecast 0.2% from a year earlier, while factory deflation extended into a 26th straight month.

Still, some investors remain skeptical about Beijing’s efforts to boost growth.

“The hurdle to change our mind on making the country a tactical overweight within the EM equity allocation remains quite high, and such a change would require a fundamental change in the country’s monetary policy framework,” said Homin Lee, senior macro strategist at Lombard Odier. “We are skeptical that we are there yet.”

Here’s what money managers and analysts are saying about the Politburo readout:

“The wording in this politburo meeting statement is unprecedented,” said Zhaopeng Xing, senior China strategist at ANZ Bank China Co Ltd. “We think the commentary points to strong fiscal expansion, big rate cut and asset buying”
The tone on monetary policy easing means more aggressive easing ahead, suggesting potentially faster and deeper rate cuts by the PBOC, said Becky Liu, head of China macro strategy at Standard Chartered Bank HK. “We see downside risk for our current 10-year China government bond yield forecast of 1.80% by 2025 and see rising risk for the yield dipping further lower to 1.5-1.6% by the end of 2025”
The change in the wording of the policy stance is significant, said Chunai Jean, senior strategist at Daiwa Asset Management in Tokyo. “With the ‘moderately loose’ monetary policy, expectations are rising around more concrete monetary policy at the upcoming CEWC”
“I don’t think we can expect much from CEWC, it’s more guidance than fine detail on policy,” said Sat Duhra, portfolio manager at Janus Henderson Investors. “Even these kind of statements are quite general and not that meaningful, but it does keep giving investors confidence that the government is not stepping back on addressing issues such as local government debt and weak consumption”

—With assistance from Tian Chen, Wenjin Lv and Qizi Sun.