China Traders Chase Financial, Property Stocks on Policy Shift
(Bloomberg) -- Chinese financial and property names were the nation’s biggest stock beneficiaries on Tuesday after policy makers signaled their determination to shore up the economy.
Gains were also seen in companies from heavy machinery makers to appliance manufacturers, though the broader market’s advance was muted as some investors fretted economic conditions may be softer than anticipated.
The CSI Financials Index closed 1% higher after the central bank’s announcement Monday of a cut to the reserve requirement ratio. A gauge of Shanghai-listed developers gained 1.4% while its Hong Kong counterpart rose 1.8% after the Communist Party’s Politburo signaled an easing in curbs on the real estate industry.
Still, the benchmark CSI 300 Index only added 0.6%, versus a gain of 1.7% in the broader MSCI Asia Pacific Index as of 4:41 p.m. local time.
The RRR cut coming so speedily on the heels of Premier Li Keqiang flagging the possibility has some investors “worried that the economy could be worse than expected,” said Peng Linxia, associate investment officer at Golden Glede Fund Management (Zhuhai Hengqin) Co. “People are choosing to focus on the dark side of things at the moment, especially as loosening polices are widely expected.”
Sovereign bond traders largely priced in the RRR news on Monday, when 10-year government bond yields dropped five basis points to 2.82%. They were around 2.88% on Tuesday.
The offshore yuan was little changed versus the greenback. Chinese high-yield dollar bonds rose at least 3 cents on the dollar Tuesday afternoon on the easing signs, according to credit traders.
Interbank borrowing costs edged higher, with the overnight repurchase rate climbing 32 basis points to 2.13%. Repo rates are staying within a narrow band they have been fluctuating in since early this year.
Some of the money released by the RRR cut will be used by banks to repay maturing loans from the central bank’s medium-term lending facility, and some of it will be used to replenish financial institutions’ long-term capital, the People’s Bank of China said Monday. There’s almost 1 trillion yuan ($157 billion) worth of the one-year loans maturing on Dec. 15, the day the cut takes effect.
Market watchers said China will need to cut banks’ reserve ratio further to boost risk assets, given its move of fine-tuning monetary policy has already been somewhat priced in by the domestic financial markets.
“The key question on investors’ mind is whether the government is willing to change the policy stance in the property sector, how much will be changed, and whether a change of stance can really help to turn the sector around,” according to Zhiwei Zhang, chief economist at Pinpoint Asset Management.
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Stocks related to the real estate industry also jumped. Hangzhou Robam Appliances Co. surged the 10% limit in Shenzhen while construction supplies maker Beijing Oriental Yuhong Waterproof Technology Co. climbed 5.6%. Foreign investors net purchased 7.9 billion yuan of onshore shares via trading links between the mainland and Hong Kong markets.
A gauge of mainland-listed brokerages, which are typically the most sensitive to looser monetary stance and the most volatile pocket of the market in times of exuberance, advanced, led by Industrial Securities Co.
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