(Bloomberg) — The Chinese Finance Ministry’s long-awaited briefing on Saturday lacked the firepower stock investors had hoped for, signaling that the volatility gripping the market after a global rally is likely to increase.
Most read from Bloomberg
While Finance Minister Lan Fo’an promised more support for the struggling real estate sector and hinted at greater government borrowing to support the economy, the briefing did not provide a dollar figure for the new fiscal stimulus markets had been seeking. A lack of new incentives to boost consumption, which has been a weak link in the economy, is another reason why traders may feel disappointed.
The ministry “has done its best,” but there is a big gap between what was announced and what the market expected, said Shen Meng, director of Beijing-based boutique investment bank Chanson & Co. “So the overall sentiment for investors is negative.”
Patience is running out among investors, who have been insisting that Beijing will announce large-scale fiscal measures to support the rally fueled by the stimulus wave unleashed by authorities in late September. The CSI 300 Index, a benchmark for domestic stocks, hit its biggest weekly loss since late July on Friday, with volatility rising ahead of the MOF briefing.
If the rally flattens out further, there is a risk of fueling concerns that stocks are heading for another false dawn, which could bring more selling pressure. The market has fallen into a stop-start cycle of gains and losses several times before, as Beijing’s piecemeal stimulus approach provided only a short-lived recovery.
Local governments will be allowed to issue special bonds to buy unsold homes and turn them into subsidized housing, Lan and his deputies said on Saturday, while refraining from putting a price tag on any additional stimulus measures. Lan also hinted that there is room for more government bond issuance and higher government spending, steps that could be announced later this month or early November.
Ahead of the weekend, investors and analysts polled by Bloomberg had expected China to deploy as much as 2 trillion yuan ($283 billion) in new fiscal stimulus on Saturday, including potential subsidies, consumption checks and financial support for families with children.
“The scope for further fiscal stimulus is still on the table,” said Britney Lam, head of long-short equity at Magellan Investments Holdings Ltd. In the meantime, “markets are likely to see further profit-taking,” she said.
The inflation figures released on Sunday are likely to increase investor concerns. It showed that Chinese consumer prices rose less than forecast in September, while factory rates fell for the 24th month in a row. This underlines the need for further policy support to help the economy emerge from deflation.
The CSI 300 Index fell 3.3% last week, but is still 21% higher than its closing price on September 23, the day before the Chinese central bank announced a broad package of measures, including an interest rate cut and liquidity support for the stock market. . In Hong Kong, the Hang Seng China Enterprises Index lost 6.6% last week, after rising more than 30% in the previous three weeks.
Although the epic recovery of Chinese stocks has seen companies like Goldman Sachs Group Inc. and BlackRock Inc. has pushed the market to upgrade, it has also attracted skepticism from others such as Invesco Ltd. and Morgan Stanley, which say the stocks have already gone too far. quickly.
What’s next?
Investors will soon turn their attention to the next major policy briefing in the coming weeks – from the Communist Party-controlled parliament that oversees the budget – for details on more stimulus measures. At its October meeting last year, the Standing Committee of the National People’s Congress approved additional public debt and increased the budget deficit ratio.
Traders will continue to wait for more details after the Treasury Department on Saturday used terms like “relatively large amount or relatively large space” to describe the measures, said Frances Cheung, a strategist at Oversea-Chinese Banking Corp.
“On balance, the market is unlikely to get excited,” he said, when asked how stocks might react on Monday.
Chinese government bonds were little changed compared to the measures announced on Saturday. By midday today, the 10-year yield had reversed an earlier decline of as much as two basis points, according to traders who asked not to be identified because they are not allowed to comment publicly on the rates market.
Reinforced fiscal pressures would likely weigh on Chinese bonds as it would encourage traders to shift their money to riskier investments with potentially better returns. An increased supply of debt can also erode liquidity in the financial system, making it more difficult for the market to absorb the full amount.
The yield curve is likely to trend downward as bond issuance this year could fall below market consensus, said Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group. In the future, we expect 1 trillion yuan of ultra-long government bonds and 1 trillion yuan of local bonds to be announced, he added.
–With help from Abhishek Vishnoi, Zhu Lin, Wenjin Lv, Shuiyu Jing, and April Ma.
Most read from Bloomberg Businessweek
©2024 BloombergLP
