China Markets Start 2023 With a Bang as Policy Shift Hastens
Comment of the Day

January 04 2023

Commentary by Eoin Treacy

China Markets Start 2023 With a Bang as Policy Shift Hastens

This article from Bloomberg may be of interest to subscribers. Here is a section:

The world’s second-biggest stock market is looking like an investor darling again, as optimism about the eventual benefits of Beijing’s abrupt end to Covid curbs outweighs concerns over the short-term pain it inflicts. Adding to that is a series of policy developments signaling the return of economic pragmatism, including plans of fresh property support, discussions of ending a ban on Australian coal imports and progress toward concluding a crackdown on Jack Ma’s financial tech behemoth.

The euphoria has spread beyond equities. The offshore yuan strengthened 0.5% against the dollar, while dollar bonds of some of China’s distressed developers saw sharp gains.

“These directly remove some of the pillars of risks for China — property, geopolitical, and regulatory headwinds,” said Marvin Chen, a Bloomberg Intelligence analyst, referring to the slew of “active” policies. 

Concerns over a further worsening of China’s property debt crisis receded further Wednesday after Bloomberg News reported that authorities are weighing new measures to ease the cash crunch plaguing some systemically important developers. The resumption of approvals for private equity funds to raise money for residential housing developments also lifted sentiment. 

Eoin Treacy's view

It is looking increasingly likely Chinese policy has just had a major (positive) reversal. The effusive praise Qin Gang gave for the US negotiators as he stepped down as the top Chinese envoy to Washington suggests we can expect a friendlier atmosphere for the next year.

China’s credit impulse was last updated in late November but there is every reason to expect it will continue to trend back towards the upper side of the long-term range. China is finally making more credit available to the beleaguered local government and property developer sector.
Without a property tax system, there is no way to avoid the linkage between land sales and local government finances. That suggests the lows are either in or close for the property sector. The China Real Estate Owners and Developers Valuation Peers is firming from the region of the trend mean and has broken the medium-term downtrend.
Longfor Group Holdings is firming in the region of the trend mean.
As a Hong Kong Bank, Standard Chartered broke out to a new 32-month high today.

Hengan International (China’s equivalent of Kimberly Clark) was a Pan Asian Dividend Aristocrat but was unable to hold the payout over the last three years. It has rallied over the last month to break the downtrend and a sustained move below the trend mean would be required to question recovery potential.
Even the tutoring sector is rebounding with New Oriental finding support at the upper side of the base formation this week.

Alibaba popped back above the trend mean for the first time in almost two years today, to break the downtrend.

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