(Bloomberg) — China’s stock and bond markets are sending a clear signal to policymakers that more steps need to be taken to restore investor confidence.
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Stocks fell for the third day in a row on Tuesday, matching last week’s rally buoyed by optimism about market relief. Benchmark 10-year Treasury yields fell to their lowest level in more than 20 years as traders said they expected the People’s Bank of China to introduce more monetary stimulus to boost growth.
Dark clouds over the world’s second-largest economy deepened this week as the liquidation of debt-laden China Evergrande Group, once the country’s largest developer, heightened concerns about the beleaguered real estate sector. Investors see little reason for optimism as geopolitical risks resurface ahead of the U.S. presidential election later this year and disappointing earnings results from major companies.
Morgan Stanley strategists, including Jonathan Garner and Laura Wang, said: “This pattern of renewed declines in bond yields and renewed declines in stock prices suggests that stimulus will be sufficient to address the current deflationary environment.” “This highlights the market’s concerns that this is not the case,” he said in a note. “Our economists continue to argue that we need massive fiscal stimulus aimed at consumers.”
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The Hang Seng China Enterprise Index, a measure of Chinese stocks listed in Hong Kong, fell as much as 2.7% on Tuesday, the worst performer in Asia. BYD became one of the companies with the biggest drag after the EV giant’s profits fell short of expectations.
The CSI300 index closed 1.8% lower, despite foreign investors buying about 1.7 billion yuan ($237 million) of mainland stocks on a net basis.
The benchmark 10-year bond yield fell to 2.47%, the lowest level since 2002, as demand for safe haven assets increased amid expectations that the economy would continue to be under pressure from sluggish consumption and real estate.
The fresh decline in stock prices suggests investors are likely to sell for profits unless the Chinese government takes bolder steps. Investors initially welcomed last week’s report on the stock market rescue plan and the central bank’s decision to cut reserve requirements, but the rebound was short-lived as authorities failed to take further action.
“Valuations are clearly cheap, but there are good reasons for this, including self-inflicted damage in the tech and property sectors,” said Kieran Calder, head of Asian equity research at Union Bancair Privy. “Our view is that investor confidence will not return until the real estate sector finally recovers.The ongoing news flow shows that the real estate crisis remains serious and not easily resolved. You can see that it’s not.”
The Chinese government faces the difficult task of attracting investors back after a crash that wiped out more than $6 trillion in market capitalization for Chinese and Hong Kong stocks since peaking in 2021. Passive fund managers are turning their backs on the world’s second-largest stock market, as the recession reinforces the structural changes that are driving everyone away from active money.
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Sentiment towards Chinese stocks traded in Hong Kong took a further hit after Hong Kong announced details of its planned national security law, a move that will have broader implications for Hong Kong’s status as an international financial center. will give.
Economists expect figures to be released on Wednesday to show that China’s manufacturing sector contracted for the fourth straight month in January.
Daniel Tan, a fund manager at Grasshopper Asset Management in Singapore, said China’s recent pledges “may have provided some reassurance for Chinese stocks, but the structural rally requires further action.” It’s necessary.” He added: “It may be too early to judge the bottom for Chinese stocks or to assume that global funds are significantly increasing their allocations to China risk.”
–With assistance from Ishika Mookerjee, Abhishek Vishnoi, John Cheng, and April Ma.
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