(Bloomberg) — Chinese shares ended higher after a volatile session as investors awaited the outcome of the government’s planned briefing on fiscal policy on Saturday.
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The CSI 300 Index ended up 1.1% at the close after swinging between gains and losses earlier in the day. The benchmark fell 7.1% in the previous session – its worst performance since early 2020. An index of Chinese shares listed in Hong Kong rose more than 3% before a holiday in the city on Friday.
Traders are pinning hopes that the Treasury Department briefing will provide more catalysts to support the rally that started in late September after Beijing unveiled a barrage of monetary stimulus. Major fiscal measures are so far absent from the package, and money managers and strategists have warned that the recovery could be another false dawn if the promises are not backed with real money.
Finance Minister Lan Fo’an is expected to take steps to strengthen fiscal policy to support growth and answer questions from reporters at a briefing starting at 10 a.m. local time on Saturday, the State Council Information Office said.
“Investors are still hopeful of a Treasury announcement approving the issuance of additional government bonds on top of this year’s budget to support fiscal spending,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co. It is high for MOF to meet the expectations of the market.”
Bernstein Societe Generale Group’s Asia quant strategists maintained a tactically considered stance on China on Thursday pending “some concrete announcements” at the Treasury Department’s Saturday briefing or after the US election.
Meanwhile, China’s central bank set up a swap facility to provide liquidity for institutional investors to buy shares, a move announced last month as part of the broad stimulus package.
The People’s Bank of China will begin accepting applications from eligible securities firms, funds and insurers on Thursday to acquire highly liquid assets such as government bonds and central bank notes if they provide certain collateral. The size of the instrument amounts to 500 billion yuan and may be expanded in the future, the monetary authority said in a statement.
Tax package
The CSI 300 Index rose more than 30% from its September low through Tuesday, when trading resumed after the Golden Week break. On Wednesday, the stock tumbled on profit-taking as traders grew impatient with the pace of Beijing’s stimulus measures.
How long the momentum can continue will depend on the scale and speed of follow-up policy measures, with lackluster holiday spending data reminding us that the economy is still far from gaining a foothold. Any disappointment after Saturday’s briefing could trigger a sell-off.
Revenue for Thursday’s session was 2.13 trillion yuan ($301 billion), compared with a record 3.43 trillion yuan on Tuesday and 2.93 trillion yuan yesterday.
The ministry “will likely discuss a supplementary budget package for the rest of the year, even if it will be modest in size,” Morgan Stanley economists led by Robin Xing wrote in a note. Economists at Societe Generale SA also said the government is unlikely to announce a “super-sized fiscal stimulus” of 5 to 10 trillion yuan at once.
The yield on Chinese ten-year government bonds fell by four basis points to 2.145%. The yuan gained about 0.1% in both domestic and foreign trade.
“The size and scope of the next package could disappoint, especially if it remains modest,” said Billy Leung, investment strategist at Global X Management in Sydney. “Investors are likely to remain on the edge as volatility continues as they wait for clearer guidance on the 2025 budget outlook. We will see more of this until there is clarity on Beijing’s pledge.”
–With help from Charlotte Yang, Wenjin Lv and Tian Chen.
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