China’s bull market pauses for 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.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

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”.