Beijing shifts stance on economy, but words alone won’t be enough
Subscribe to enjoy similar stories. In recent months, Chinese stock markets have been whipsawing between hope and uncertainty, as the market attempts to read Beijing’s tea leaves for signs of an economic lifeline. While new hopes are emerging, investors should be careful not to get carried away.
The latest spark of optimism came from the Politburo, the top decision-making body of the Chinese Communist Party. In a readout of its meeting, the use of the phrase “moderately loose monetary policy" got the market looking forward to a potentially big rescue. Such language was last used in the aftermath of the global financial crisis and hasn’t been heard since 2011.
The meeting also pledged further support to consumption and the housing market. A new term of “unconventional countercyclical adjustments"—whatever that means—adds to the hope. The statement triggered a late-session rally that lifted the Hong Kong market around 3% higher Monday, erasing earlier losses.
However, the initial enthusiasm quickly began to wane, with the market closing lower on Tuesday. Some caution is indeed warranted. The Hang Seng Index jumped as much as 27% between late September and early October when the government signaled that it will be more assertive in fixing the economy.
Yet lack of details on big stimulus, especially to boost consumption, means more than half of those gains have been wiped out. While markets might hope for a stimulative silver bullet from Beijing, the reality is more complex. As Nomura’s economists pointed out, China’s economy isn’t in a normal downcycle and it would take more than just monetary easing or limited fiscal stimulus to kick-start it again.
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