China’s bull market pauses for breath

China's CSI 300 stockmarket index has fallen by 10% from its latest peak. But investors may just be catching their breath. 

While US spending balloons, China has begun to tighten the fiscal taps, says The Economist. Prime Minister Li Keqiang has announced a lower fiscal deficit target for this year. Meanwhile, the central bank has begun to withdraw liquidity in a bid to cool speculation. Guo Shuqing, the country’s chief banking regulator, recently warned of bubbles in domestic property and global financial markets. Chinese investors have been put “on notice”.

The newly published five-year plan has not done away with the traditional growth targets, but they do appear to be “vaguer and more flexible than before”, says Andrew Batson of Gavekal Research. Instead, there is a pivot towards a “pledge to keep China’s debt-to-GDP ratio stable or declining”.

The renewed emphasis on debt levels has given investors pause for thought, say Joanne Chiu and Xie Yu for The Wall Street Journal. The CSI 300 stockmarket benchmark soared by 27% in 2020. Yet the index has slid by 10% from its latest peak. Still, this “slow bull market” may not be over yet, says Wendy Liu of UBS Global Research. Investors may just be catching their breath. 

A key bullish factor is that Chinese mergers and acquisitions (M&A) activity has had its “busiest start to a year on record”, say Tabby Kinder and Thomas Hale in the Financial Times. 

The total value of domestic dealmaking amounts to $77.5bn so far in 2021. Mainland Chinese businesses used to go on acquisition sprees abroad; but now Beijing wants to develop more domestic, consumer-led industries, while geopolitics has made overseas acquisitions more difficult in recent years, says David Brown of PwC. “That has redirected a lot of capital that would previously have gone outside the country back into domestic acquisitions”.

Most Popular

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism
Economy

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism

Russell Napier talks to Merryn about financial repression – or "stealing money from old people slowly" – plus how Asian capitalism is taking over in t…
16 Jul 2021
The future belongs to emerging markets – three EM stocks to buy now
Share tips

The future belongs to emerging markets – three EM stocks to buy now

Professional investor Carlos von Hardenberg of Mobius Capital Partners picks three of his favourite emerging-market stocks.
5 Jul 2021
Three companies that are reaping the rewards of investment
Share tips

Three companies that are reaping the rewards of investment

Professional investor Edward Wielechowski of the Odyssean Investment Trust highlights three stocks that have have invested well – and are able to deal…
19 Jul 2021