China's Stock Investors Are Still Hooked on Economic Stimulus

(Bloomberg) -- China’s equity investors aren’t quite ready to see Beijing scale back its efforts to support the economy.

Stocks started the week lower after improving data prompted traders to pare back their bets for additional stimulus. The Shanghai Composite Index rallied the next day after the central bank injected cash into the financial system, alleviating concerns over a liquidity crunch. Then came speculation officials had prepared a sweeping package to boost consumption, triggering a rally in carmakers and firms that sell household goods.

Despite some early signs of success from the government’s tax-cut program, China’s economic stabilization has so far underwhelmed equity investors, who remain hooked on the prospect of further supportive measures. The first-quarter reporting season, which in China really shifts into gear in the coming weeks, may provide further clues on whether companies are starting to see a recovery in demand.

With a number of markets in Asia closed on Friday, including Hong Kong, the week is ending on a subdued note. The Shanghai Composite Index was down 0.5 percent at 11:05 a.m local time, on volume that’s 21 percent below the 30-day average for this time of day. It’s still up 1.4 percent on the week.

Where’s the cash?

There was some debate over whether the supply of cash in China is getting tighter. The People’s Bank of China decided to roll over only half of the funds coming due through one of its longer-term policy tools, but offered 160 billion yuan ($24 billion) of seven-day money. Tax dues are increasing demand for liquidity, with April and May peak payment season.

That briefly sent the overnight repurchase rate above 3 percent for the first time since 2015, though other longer-term rates remain relatively subdued.

Chart of the week

The yuan jumped to the highest level in almost ten months against a basket of global peers on Thursday, after a stronger fixing from the central bank signaled Beijing is comfortable with the gains.

Catching up

Here’s what else caught our eye this week:

• It takes a strong stomach to be bearish on Kweichow Moutai Co.
• China’s king of debt has a $35 billion fortune and lots of doubters.
• Foreign investors dream of a world with China bond futures.
• Billionaire Terry Gou’s bid for president fuels a speculative stock frenzy.
• China’s unloved steel sector may soon get some love.
• An increasingly dull yuan is prompting traders to get more creative.
• Spicy hotpot has made this couple $6 billion richer in 2019.
• An update on China’s stalled plan to bring its tech giants back home.

To contact the reporter on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, David Watkins, Magdalene Fung

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