Global markets are taking China’s modest growth target in their stride, indicating that investors see merit in Beijing’s attempt to revive the world’s second-biggest economy without it overheating.
(Bloomberg) — Global markets are taking China’s modest growth target in their stride, indicating that investors see merit in Beijing’s attempt to revive the world’s second-biggest economy without it overheating.
As the dust settles on the unambitious 5% goal from the National People’s Congress, market watchers found elements that kept them upbeat, including China’s commitment to achieve high-quality growth without inflation-stoking stimulus. Treasuries gained, while stocks in Asia rallied with some emerging market currencies also strengthening.
The contained market reaction, with commodity markets taking the biggest hit, comes after investors debated whether a resurgent Chinese economy would end up fueling global inflation and spark more tightening by the Federal Reserve and other major central banks. A changing of the guard for China’s top leadership had also spurred concerns that the new officials would be less hawkish on the risks of ballooning debt.
“A 5% target is actually a more reasonable and healthier target, better for curbing systemic risks,” said Shen Meng, director for Chanson & Co. “Such a target not only gives the government more flexibility in its policies but also ensures room for structural industrial reform.”
The MSCI Asia Pacific Index rallied as much as 1.1% Monday, while the yield on benchmark 10-year Treasuries fell two basis points to 3.93%. The Bloomberg Dollar Spot Index was little changed, suggesting there was no rush to safety while emerging-market currencies from the Korean won to the Taiwanese dollar gained.
The onshore benchmark CSI 300 Index closed 0.5% lower, while the Hang Seng China Enterprises Index, a gauge of Chinese stocks traded in Hong Kong, erased losses of 1.2% to close little changed.
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The reactions are a far cry from what transpired in the wake of the October political gathering, when President Xi Jinping’s power consolidation spooked investors and spurred an epic stock-market rout.
China’s authorities face the balancing act of refraining from over-stimulating the economy while keeping confidence solid. With growth expected to reach 5% without much policy input, investors are now less worried over Beijing flooding the market with liquidity and accelerating global inflation.
“There will be support to the real economy and sectors that need it, but refraining from massive stimulus will also prevent the side effects that come with it and the risk of messing up our economic restructuring again,” said Zhang Fushen, senior analyst at Shanghai PD Fortune Asset Management LLP. “In a year of a recession in the US, around 5% seems to be a palatable figure.”
Premier Li Keqiang’s work report mostly repeated familiar official rhetoric from prudent monetary policy to maintaining a stable currency. The budget released on Sunday also suggested fiscal support will be restrained. On property, Li said China will target disorderly expansion in the sector, pledging to help defuse and prevent risk in high-quality, major developers.
What may reshape market dynamics in the coming days will be potential sweeping changes to China’s bureaucracy and the lineup of a new Cabinet under Li Qiang, widely expected to be the next premier, as the political gathering continues.
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