Dow Today – China Stocks, Yuan Extend Rally as Policy-Easing Bets Intensify
(Bloomberg) — Chinese stocks extended their recent rebound and the yuan advanced after the nation’s top decision makers signaled policies may become more pro-growth next year.
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The benchmark CSI 300 Index climbed as much as 1.8% to its highest in almost five months while the Hang Seng Index gained as much as 1.6%. The currency rose about 0.1% in both onshore and overseas markets, even as authorities set its reference rate at a slightly weaker-than-expected level.
Read: China Seeks to Rein in Yuan Strength With Nudge on Fixing Again
Chinese markets are rallying again as Beijing increasingly signals an intent to pivot toward supporting the economy from a lengthy deleveraging campaign. The yuan is near a three-year high and foreign investors snapped up local equities again Monday, adding to record purchases last week that have helped make the mainland gauge Asia’s second-best performer this month.
“The policy signals are now clear enough that it is justifiable for investors to start buying equities,” Gavekal Research Ltd.’s Thomas Gatley and Wei He wrote in a note. “Waiting for more decisive confirmation could be costly.”
Utilities and materials stocks were leading the gains in the CSI 300 while technology giants such as Meituan and Alibaba Group Holding Ltd. were among the top performers on Hong Kong’s Hang Seng Index. Both gauges trimmed some of their advances in afternoon trading.
The yuan’s rally presents a challenge to the People’s Bank of China, which doesn’t want to see gains coming too fast, or a level that is high enough to disadvantage the nation’s exporters.
The stock market pared some of its initial advance as consumer and energy stocks trimmed gains and property stocks extended declines after a sudden drop in the dollar bonds and shares of Shimao Group Holdings Ltd.
Read: Chinese Developers Slump as Shimao Bond Plunge Spooks Investors
The current trouble in the property sector follows a regulatory crackdown earlier this year that hit wide swathes of the economy, particularly technology companies, and plunged many stock indexes into a bear market.
While Chinese shares are likely to stay volatile for some time, a stable economic recovery supported by policy stimulus, vaccine rollouts, and structural reform plans should bring upside in 2022, said Banny Lam, head of research at CEB International Investment Corp.
That was evidenced by Monday’s moves, with investor taking to heart Friday’s vow from the Communist Party’s annual Central Economic Work Conference to “front load” policies, maintain stability and keep monetary settings flexible and appropriate next year. Economists predict China will start adding fiscal stimulus in early 2022.
“Focus is turning to growth with support from both fiscal and monetary policy,” said Bloomberg Intelligence’s strategist Marvin Chen. “Stocks tied to policy-supportive themes such as green energy, industrial upgrade and localization will likely continue to gain in 2022.”
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