A Pivotal Point for China's Divisive, World-Beating Bond Market

(Bloomberg) -- This year’s best-performing government bond market is seriously dividing opinion.

Bulls point to signs of weakness in China’s economy and are betting that Beijing will soon have to take monetary or fiscal measures to counter increasing risks to growth. Bears say take profit and reduce duration risk as any additional stimulus has already been priced in. Some are going even further, warning that the one-way trade has turned China’s rate market into a bubble that is likely to burst when the central bank falls short of expectations on easing.

Focus is turning to next week’s annual Economic Work Conference in Beijing, where officials may offer some clues on the direction of policy in 2019.

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$2 trillion

That’s the damage done to China’s equity market in 2018, the most painful calendar year in a decade. All 10 industry groups on the CSI 300 Index are down 10 percent or more, stung by everything from a national vaccine scandal to a decline in consumer spending, the Trump administration’s crackdown on tech and Beijing’s tightening grip on education, gaming and drugs.

The Hang Seng Index has flipped between losses and gains for eight consecutive weeks, not venturing too far from the 26,000 level that’s close to its 50-day moving average. The city’s stocks look unlikely to escape what’s shaping up as their worst quarter in more than three years.

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Chart of the week

A Pivotal Point for China's Divisive, World-Beating Bond Market

Options traders are less interested in betting against the Chinese currency. Read more here

Catching up

Here’s what else caught our eye.

  • Air China may buy some of HNA Group’s airline assets.
  • A deep dive into Huawei, China’s tech superstar.
  • One ETF issuer is starting six new China-focused funds.
  • Evidence that China’s economy is under pressure.
  • Starbucks is struggling to grow in China.
  • Another underwhelming Hong Kong debut.
  • Selling 488 apartments in a day is not exactly good news.
  • South Korea takes cues from China’s P2P lending debacle.
  • Apple Inc.’s rivalry with Qualcomm Inc. heats up.

©2018 Bloomberg L.P.