“The room for further fiscal stimulus is still on the table,” said Britney Lam, head of long-short equities for Magellan Investments Holdings Ltd.
In Hong Kong, the Hang Seng China Enterprises Index lost 6.6% last week after surging more than 30% in the previous three weeks.
China’s sovereign bonds were little changed on the measures announced on Saturday.
A strengthened fiscal push would likely weigh on China’s bonds by encouraging traders to move funds into riskier investments with potentially better returns.
Going forward, “we expect 1 trillion yuan of ultra-long treasury and 1 trillion yuan of local bonds to be announced,” he added.
Britney Lam, head of Magellan Investments Holdings Ltd.’s long-short equities division, stated that “there is still room for more fiscal stimulus.”. “Markets will probably see further profit taking” in the interim, the analyst predicted.
Investor concerns are likely to increase in light of the inflation data that was released on Sunday. It revealed that factory-gate prices dropped for a 24th consecutive month in September, while consumer prices in China increased less than anticipated. This highlights the need for additional policy support to help the economy escape deflation.
Even though the CSI 300 Index fell 3.3% last week, it is still up 21% from its close on September 30. 23. The day before, the People’s Bank of China declared a wide range of policies, including a reduction in interest rates and assistance with equity market liquidity. Following a surge of over 30 percent over the preceding three weeks, the Hang Seng China Enterprises Index in Hong Kong saw a 6 percent loss last week.
Though Goldman Sachs Group Inc. and others have benefited from the phenomenal surge in Chinese stock prices. additionally BlackRock Inc. It has also prompted doubt from others, including Invesco Ltd., in an attempt to improve the market. additionally Morgan Stanley, which claims that the stock market has already run too quickly and too far.
Kenny Wen, head of investment strategy at KGI Asia Ltd., expressed his disappointment. “Timing and amount” were still unclear, even though the finance minister announced some specific measures.
What Comes Next?
In order to learn more about potential additional stimulus, investors will soon be focusing on the upcoming major policy briefing from the parliament, which is controlled by the Communist Party and is in charge of the budget. The Standing Committee of the National People’s Congress approved more sovereign debt and increased the budget-deficit ratio during its meeting in October of last year.
The actions announced on Saturday barely affected China’s sovereign bonds. Traders, who wished to remain anonymous due to restrictions on their ability to publicly comment on the rates market, said that by midday, the 10-year yield had recovered from an earlier decline of up to two basis points.
A stronger fiscal push would probably put pressure on China’s bonds by incentivizing traders to shift money into riskier securities that might yield higher returns. In addition to decreasing liquidity in the financial system, more debt may make it more difficult for the market to absorb the total amount.
Senior strategist Zhaopeng Xing of Australia and New Zealand Banking Group predicted that the yield curve would likely move lower because debt issuance this year may fall short of market expectations. Moving forward, he said, “we expect 1 trillion yuan of local bonds and 1 trillion yuan of ultra-long treasury to be announced.”.
–With help from Matthew Burgess, Michael G., April Ma, Shuiyu Jing, Wenjin Lv, Zhu Lin, and Abhishek Vishnoi. Toby Alder and Wilson.
(Additions to the fifth paragraph: AUD and NZD move. An incorrect reference to stocks in a strategist’s comment was removed and their gender was fixed in an earlier version of this story. ).
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