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(Bloomberg) — China’s stock and bond markets are sending a clear signal to policymakers that more steps need to be taken to restore investor confidence.
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Stocks resumed falling on Tuesday, breaking last week’s rally driven by hopes for a market rescue package. Benchmark government bond yields fell to their lowest level in nearly 22 years, confirming expectations that the People’s Bank of China would introduce more monetary stimulus to boost growth.
Dark clouds over China’s economy deepened this week as the liquidation of debt-laden China Evergrande Group, once the country’s largest developer, intensified concerns about its struggling real estate sector. Investors see little reason for optimism amid disappointing major financial results and as geopolitical risks resurface ahead of the U.S. presidential election later this year.
“Valuations are clearly cheap, but there are good reasons for this, including self-inflicted damage in the tech and property sectors,” said Kieran Calder, head of Asian equity research at Union Bancair Privy. “Our view is that investor confidence will not return until the real estate sector finally recovers.The ongoing news shows that the real estate crisis remains serious and will not be easy to resolve. I corroborate it.”
The Hang Seng China Enterprise Index, a measure of Chinese stocks listed in Hong Kong, fell as much as 2.7% on Tuesday, the worst performer in Asia. BYD became one of the companies with the biggest drag after the EV giant’s profits fell short of expectations.
The land CSI300 index also fell by more than 1%. Foreign investors returned to selling in earnest, selling about 2 billion yuan ($279 million) in mainland stocks as of the midday trading break.
Expectations that the economy will continue to be under pressure due to sluggish consumption and real estate slump have increased demand for safe haven assets, and the yield on 10-year government bonds has fallen to 2.47%, the lowest level since 2002.
The fresh decline in stock prices suggests investors are likely to sell for profits unless the Chinese government takes bolder steps. Investors initially welcomed last week’s report on the stock market rescue plan and the People’s Bank of China’s lower reserve requirements, but the rebound was short-lived as authorities took no further action.
Read more: Here’s what China is doing to boost its economy and save its markets
Sentiment towards Chinese stocks traded in Hong Kong took a further hit after Hong Kong released details of its national security law plans. The bill will have far-reaching implications for Hong Kong’s international status.
Data released on Wednesday is likely to show that China’s manufacturing sector contracted in January for the fourth straight month, adding to the dire situation for the economy.
Daniel Tan, portfolio manager at Grasshopper Asset Management in Singapore, said China’s recent pledges “may have provided some comfort for Chinese stocks, but the structural rally needs further support.” It’s necessary.” He added: “It may be too early to judge the bottom for Chinese stocks or to assume that global funds are significantly increasing their allocations to China risk.”
–With assistance from Ishika Mookerjee, Abhishek Vishnoi, and John Cheng.
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