Shares of Chinese infrastructure firms rallied on Wednesday following Xi’s pledge. The smaller, growth-heavy ChiNext Index soared 5.5%, the most since March 2016.
The barrage of verbal promises has drawn comparisons to the events in October 2018, when stocks were plummeting amid the U.S.-China trade war and domestic deleveraging worries.
Despite the initial boost, profit-taking soon kicked in and stocks tanked to fresh lows less than two months later. Historically cheap valuations pulled the market out of the doldrums in 2019.
“A revelation has hit traders that Chinese policy makers are facing an impossible trinity of goals here: they’re not going to hit the 5.5% growth target and limit the amount of leverage in their system and also have a zero-Covid tolerance policy,” Eli Lee, head of investment strategy at Bank of Singapore, told Bloomberg Television. “And this means, at the margin, the thesis for the Chinese renminbi and equities is weaker.”
There is no way the Chinese administration can walk back its COVID-zero policy. That’s as much about practicality as political priorities. Therefore, to even come close to placating an increasingly restive population, the Renminbi is being sacrificed at the expense of supporting the economy.Click HERE to subscribe to Fuller Treacy Money Back to top