Text size
Chinese stocks inched higher on Monday as
Alibaba Group Holding
(ticker: BABA) reshuffled its management, and the People’s Bank of China offered a bit of policy stimulus. But a range of concerns about Chinese stocks remain, from a delisting push from both U.S. and Chinese regulators to policy makers’ ability to navigate
China Evergrande
‘s (3333: Hong Kong) debt problems.
The
iShares MSCI China
exchange-traded fund (MCHI) rose 1% to $63.87, barely retracing just a bit of its losses from last week and down 22% year-to-date. The
Invesco Golden Dragon
ETF (PGJ) rose 2.5% to $37.31 that holds U.S.-listed Chinese shares is still down double that this year. Barron’s has been warning about volatility ahead in Chinese stocks for a while now, here, here and here, and cautioning investors not to rush in to bargain hunt—and patience may still be warranted.
China cut the amount of reserves most banks need to hold, a way to nudge banks to lower financing rates for struggling companies. Some economists saw that as a troubling sign as Beijing manages Evergrande’s fallout. “This is anything but routine, except in the sense that this is how central banks must react to a sudden surge in financial risks,” Craig Botham, chief China+ Economist at Pantheon Macroeconomics, wrote in a note to clients.
The move, he said, “puts the lie to” the central bank’s assurances that property financing would be unaffected by Evergrande’s implosion. Default is increasingly the base case for Evergrande, which risks cross-defaults on $19 billion of outstanding debt, and a large scale pullback of financing as banks wait to see where the cracks are, he adds.
In a separate note, Capital Economics senior China economist Julian Evans-Pritchard described the move as more of a cushion for the economic slowdown than anything that could stop the deceleration in economic growth. So far, he sees little appetite among central bankers for bigger stimulus that would help credit growth rebound strongly.
“As economic activity continues to weaken and the PBOC becomes more serious about lowering corporate financing…
Read More: List of Concerns Over China’s Stocks Is Getting Longer. Here’s Why.