(Bloomberg) — A series of official pledges and written commitments to stability may provide short-term relief to China’s beleaguered equity markets, but it may take more than just words to instill confidence and drive a sustained turnaround.
On Wednesday, Chinese officials vowed to stabilize financial markets, promising to ease a regulatory crackdown, support property and technology companies and stimulate the economy. The series of statements spurred a jaw-dropping 22% rebound in the Hang Seng Tech Index, with a gauge of China shares listed in Hong Kong soaring by the most since the financial crisis. U.S.-listed Chinese stocks also soared the most since at least 2001.
Words of encouragement, however, won’t be enough for seasoned investors seeking clarity over what authorities may do to achieve their goals. Strategists at Morgan Stanley say that they will be looking for specific measures within property and tech sectors along with certain economic signs before they are convinced that the recent historic rout is over.
Here are some measures that are on the wishlist of Chinese equity traders.
Relaxed Covid Curbs
Mass lockdowns and mandatory Covid-19 tests are back on the table in some areas as China reports virus infections at levels not seen since early in the pandemic. Restrictions have left tens of millions of people unable to leave their homes or communities, adding to anxiety about economic growth and consumption.
While newly relaxed quarantine rules and a higher bar for hospitalizations has eased investors concerned about further lockdowns, investors want to see further signs of a pivot away from a “dynamic zero” Covid policy. That would be especially important for large hubs like Shenzhen.
Giving local governments more control to fine tune restrictions or even roll out pilot projects around co-existing with the virus in smaller cities would be welcoming news.
“China should relax Covid-related restrictions for more confidence to come in A-shares,” said Margaret Yang, a strategist at Daily FX.
Property Lifeline
A watered-down tone of support for the real estate sector during the annual National People’s Congress earlier this month was a blow to investor sentiment. Without a bottoming of property-related problems, support for other sectors won’t be enough to offset the shock. China’s home prices in February dropped at a faster clip from the previous month, as lower mortgage rates and down payments in some cities haven’t stopped the fallout.
Investors are seeking a more ambitious pivot, such as cutting the down-payment ratio in larger cities — even if this would be a shift away from the central bank’s existing policy framework. Funneling needed liquidity into the sector, such as through introduction of a new lending facility or easier access to developer loans would be a positive sign.
Easing of purchase restrictions, reforms in household registrations to accommodate migrants and indications about the possible delay to the rollout of the property tax – the last of which was signaled on Wednesday – would boost confidence.
“The government needs to relax rules to allow more cash flows in tech and property companies. Some lending facility for the two sectors would be good,” Yang of Daily FX said.
Tech Relief
Investors pounced at heartening lines of Wednesday’s pledge pointing to the near conclusion of a regulatory crackdown and stipulating that the “rectification” of major tech platforms should end “as soon as possible.” Tech giant Alibaba Group Holding soared 27% while Tencent Holdings Ltd. jumped a record 23%.
The biggest overhang for tech names is geopolitical. China’s close ties with Russia have drawn fears of political backlash from the U.S.
For China, “the most meaningful gesture as a good global citizen is to use their channels of communication with Russia help facilitate peace talks between the warring sides,” said Wai Ho Leong, a strategist at Modular Asset Management.
A revival of new ADR listings would also bolster confidence toward a market that JPMorgan Chase & Co. recently deemed “uninvestable.” The revival of gaming approvals after a months-long pause, positive comments from state media on the role that internet firms play in providing jobs and economic growth and a verdict after a probe into Didi Global Inc. remain elusive.
The key message from announcements today is “China will proactively release market-friendly news and regulators should coordinate with each other before releasing any market-moving policies,” said Hao Hong, chief strategist at Bocom International Holdings Co. “We’ll still need to monitor what specific policies could follow but at least for now the ‘policy bottom’ of A shares is secured.”
(Adds China ADR moves in third paragraph)
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