Weak economic data out of China, on top of a rate cut, is raising the expectation for more stimulus out of Beijing.
(Bloomberg) — Weak economic data out of China, on top of a rate cut, is raising the expectation for more stimulus out of Beijing.
Foreign buying boosted local stocks and the yuan outperformed many regional peers after the People’s Bank of China cut the interest rate on one-year loans. The CSI 300 Index rose 1.6% on Thursday, the most in almost four months, while the yuan was the best-performing emerging-market currency in Asia.
“The focus will be if the Chinese authorities deliver, and whether what is delivered surpass expectations or not,” said Redmond Wong of Saxo Capital Markets HK Ltd. “Investors have become impatient with incremental measures and want a more expansive and aggressive package in one go.”
The government is finally starting to act — there are the rate cuts, and Beijing is said to be preparing a host of measures to boost the economy and the struggling property sector. The key, though, is that investors and companies want a comprehensive package rather than piecemeal measures.
Strategists and investors are already guessing as to the nature of the measures. Bets are mounting that loan prime rates will be cut next Tuesday. Macquarie Group Ltd. expects a 10-basis-point reduction in the one-year rate and a 15 basis point decline in the five-year.
A State Council meeting expected on Friday will also be closely tracked for any cues on fiscal stimulus and the sectors that could target, after top officials have held at least six consultations with business leaders and economists on revitalizing the economy in recent weeks.
Overseas investors net bought 9.2 billion yuan ($1.3 billion) of mainland shares via trading links with Hong Kong, according to Bloomberg-compiled data. That’s the biggest net purchase since early February.
“China has to announce more policies to aid the economy,” said Steven Leung, executive director at UOB Kay Hian in Hong Kong.
–With assistance from Chester Yung and Jeanny Yu.
(Updates with northbound flows data, UOB analyst comment.)
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