China Stocks, Yuan Extend Rally as Policy-Easing Bets Intensify
(Bloomberg) -- China’s equity benchmark extended its recent rebound in volatile trading and the yuan advanced after the nation’s top decision makers signaled policies may become more pro-growth next year.
The CSI 300 Index closed 0.6% higher to mark its highest close in almost five months after trimming its initial advance of as much as 1.8%. Stocks in the mainland rose even as gauges in Hong Kong erased their advance in afternoon trading amid a selloff in property shares.
The yuan rose about 0.1% in both onshore and overseas markets, even as authorities set its reference rate at a slightly weaker-than-expected level.
Read: China Seeks to Rein in Yuan Strength With Nudge on Fixing Again
Funds have been pouring into mainland assets as Beijing increasingly signals an intent to pivot toward supporting the economy from a lengthy deleveraging campaign. The yuan is near a three-year high and foreign investors snapped up local equities again Monday, adding to record purchases last week that have helped make the mainland gauge Asia’s second-best performer this month.
“The policy signals are now clear enough that it is justifiable for investors to start buying equities,” Gavekal Research Ltd.’s Thomas Gatley and Wei He wrote in a note. “Waiting for more decisive confirmation could be costly.”
Utilities and materials stocks were the top gainers in the CSI 300 while technology giants such as Meituan and Tencent Holdings Ltd. rose in Hong Kong. The Hang Seng Index gave up earlier gains of as much as 1.6% in late trading as property shares weighted thanks to a drop in the dollar bonds and shares of Shimao Group Holdings Ltd.
Meanwhile, the yuan’s rally presents a challenge to the People’s Bank of China, which doesn’t want to see gains coming too fast, or a level that is high enough to disadvantage the nation’s exporters.
While Chinese shares are likely to stay volatile for some time, a stable economic recovery supported by policy stimulus, vaccine rollouts, and structural reform plans should bring upside in 2022, said Banny Lam, head of research at CEB International Investment Corp.
That was evidenced by Monday’s moves, with investor taking to heart Friday’s vow from the Communist Party’s annual Central Economic Work Conference ensure stability and keep monetary settings flexible next year. Economists predict China will start adding fiscal stimulus in early 2022.
“Focus is turning to growth with support from both fiscal and monetary policy,” said Bloomberg Intelligence’s strategist Marvin Chen. “Stocks tied to policy-supportive themes such as green energy, industrial upgrade and localization will likely continue to gain in 2022.”
©2021 Bloomberg L.P.