(Bloomberg) — China’s much-anticipated Finance Ministry press conference on Saturday lacked the punch that stock investors had hoped for, raising concerns that the volatility gripping markets amid a global stock rally will continue. This indicates that there is a high possibility of expansion.
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Finance Minister Lan Foin promised more support for the struggling real estate sector and signaled more government borrowing to support the economy, but the news conference also hinted at the new fiscal stimulus markets were looking for. The main amount of the measure was not disclosed. The lack of new incentives to boost consumption, which has been a weakness in the economy, is another reason for traders’ disappointment.
Shen Meng, a director at Beijing-based specialist investment bank Chanson & Company, said the ministry had “done its best” but there was a big gap between what was announced and what the market expected. Negative. “
Patience is running thin among investors, who are demanding that the Chinese government unveil a big bang of fiscal measures to sustain the economic uptick sparked by a stimulus package imposed by authorities at the end of September. The domestic stock benchmark CSI300 index pared its biggest weekly decline since late July on Friday, amid rising volatility ahead of a Treasury briefing.
A further unwinding of the bull market could heighten concerns that the stock market is headed for another false dawn, creating further selling pressure. Markets have been caught in start-stop cycles of gains and losses several times in the past, as the Chinese government’s gradual approach to stimulus only produced short-term rebounds.
While refraining from putting a price tag on the additional stimulus, Lunn and his colleagues announced Saturday that local governments would be allowed to issue special bonds to buy unsold homes and turn them into subsidized housing. Mr. Lan also suggested there is room for more debt and more government spending, measures that could be announced later this month or early November.
Investors and analysts polled by Bloomberg said before the weekend that China would on Saturday release up to 2 trillion yuan ($283 billion) in new fiscal stimulus including subsidies, consumption vouchers and financial support for families raising children. I expected that.
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“There’s still room for more fiscal stimulus,” said Brittney Lam, head of equity long-short at Magellan Investments Holdings, but added, “The market could see more profit-taking. “It’s expensive.”
Inflation data to be released on Sunday could add to investors’ concerns. The report showed that China’s consumer price index rose less than expected in September, while factory admission prices fell for the 24th consecutive month, prompting further policy support to help the economy overcome deflation. highlighted the need.
The CSI300 index fell 3.3% last week, but is still up 21% from its close on Sept. 23, the day before the People’s Bank of China announced a wide range of policies, including interest rate cuts and support for stock market liquidity. . In Hong Kong, the Hang Seng China Enterprise Index fell 6.6% last week after surging more than 30% in the past three weeks.
The stunning rally in Chinese stocks has prompted companies such as Goldman Sachs Group Inc. and BlackRock Inc. to try to lift the market, while skeptics such as Invesco Inc. and Morgan Stanley say stocks have already gone too far. I’m inviting you. fast.
What’s next?
Investors will soon turn their attention to the next major policy briefing in the coming weeks by the Communist Party-led Congress, which oversees the budget, for details on further stimulus. The Standing Committee of the National People’s Congress approved additional government bonds and raised the fiscal deficit ratio at its meeting in October last year.
Francis Chan, a strategist at Oshi-Chinese Banking Corporation, said the move came after the Ministry of Finance used expressions such as “relatively large amounts or relatively large margins” to describe the measure on Saturday. Traders said they would continue to wait for further details.
“Overall, the market is unlikely to get excited,” he said in response to a question about how stocks would react Monday.
Chinese government bonds were largely unchanged from the measures announced on Saturday. By midday, the 10-year Treasury yield had erased an earlier decline of as much as 2 basis points, traders said, asking not to be identified because they cannot comment publicly on interest rate markets. I made it.
Tightening fiscal policy is likely to weigh on Chinese government bonds, encouraging traders to move money into riskier investments with potentially better returns. An increase in the supply of bonds could undermine the liquidity of the financial system and make it difficult for the market to absorb the full amount.
Chapen Singh, senior strategist at Australia New Zealand Banking Group, said the yield curve was likely to fall given that government bond issuance this year was likely to be lower than market consensus. “We expect that 1 trillion yuan of ultra-long-term government bonds and 1 trillion yuan of local government bonds will be announced in the future,” he said.
–With assistance from Abhishek Vishnoi, Zhu Lin, Wenjin Lv, Shuiyu Jing, and April Ma.
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