Free Trial

Will The PBoC Be Able To Ease ?

  • Since the start of the year, we have seen that the strong deceleration in the Chinese economic activity combined with the sharp contraction in liquidity have been weighing on domestic risky assets.
  • The chart below shows the strong divergence between the Hang Seng Index, down nearly 20% since its February peak, and the World MSCI index, which keeps reaching new highs, mostly driven by the firm momentum in US equities.
  • The selling pressure on some sectors has been even stronger amid government crackdown on businesses, expecting to outline tighter regulation on much of its economy in the coming years.
  • For instance, tech stocks are down nearly 35% since their February highs. The real estate market has also been under pressure amid growing concerns about a deepening liquidity crisis in the property sector.
  • Hence, Chinese officials are currently in a difficult position:
    • On one hand, domestic asset prices are calling for a looser policy.
    • On the other hand, cutting rates too aggressively could continue to support inflationary pressures, with PPI inflation currently standing at its highest level since June 1995 (up 13.5% YoY in October).

Source: Bloomberg/MNI

To read the full story



MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.