Traders Pile Into China Markets on Optimism Over Economy, Trade
Improving confidence helped stoke a 0.5% rally in the yuan Tuesday, pushing it to its strongest level since early August.
(Bloomberg) --
Investors are snapping up Chinese financial assets, putting aside concerns over tension in the Middle East and instead focusing on progress in trade talks with the U.S., as well as signs that the world’s second-largest economy may be stabilizing.
Improving confidence helped stoke a 0.5% rally in the yuan Tuesday, pushing it to its strongest level since early August. The currency punched past the key 6.95-per-dollar level, and traded on the strong side of its 200-day moving average for the first time since May. The CSI 300 Index of stocks closed at an almost two-year high as volume jumped.
The return of risk appetite in China comes amid growing optimism that Beijing and Washington may sign an initial deal on trade as soon as next week. Momentum is also improving in China’s economy, with recent data showing a recovery in the nation’s manufacturing sector continued in December. A calmer mood in global financial markets is allowing investors to re-focus on those positives, after the U.S. killing of an Iranian military leader sparked volatility in recent days.
“Risk sentiment is strong onshore,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “There are signs of bottoming out in the economy and a more flexible monetary policy.”
The Chinese trade delegation plans to sign the first phase of its trade deal with the U.S. in Washington on Jan. 15, people familiar with the matter have said.
Chinese investors are also expecting more support from the central bank ahead of a large liquidity shortage in January. A previously announced cut to commercial banks’ reserve requirement ratio came into effect Monday, unleashing about 800 billion yuan ($115 billion) in funds.
“We expect the economy’s strength to continue in the coming months,” Qian Wan, who covers Greater China for Bloomberg Economics in Hong Kong, wrote in a note dated Dec. 6. She cited “less uncertainties surrounding the U.S.-China trade deal, a low year-earlier base, credit expansion on seasonality and reserve requirement ratio cut, and government-led investment.”
To contact Bloomberg News staff for this story: Livia Yap in Shanghai at lyap14@bloomberg.net
To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Kevin Kingsbury
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With assistance from Bloomberg