Investment strategy
July 14, 2021
2 mins

China’s pivot to easing is a spur for stronger markets

July 14, 2021
2 mins
Ken Peng
Head of Asia Investment Strategy
SUMMARY

China implemented a series of policy tightening measures in the first half of 2021 that took a heavy toll on markets. But we believe that confirmation of a dovish shift in policy is already here.


  • A harrowing half year of policy tightening by China has left investors puzzled. As we said in early 2021, this wouldn’t last, and we expected a dovish turn in 2H 2021.
  • In the second week of July, China’s central bank cut the required reserve ratio, after a significant rebound in credit expansion in June. We see these as a strong signal of a shift from “prudential tightening” to growth support. It likely marks a turning point for a better performance in China equities, as well as the high yield bond market.
  • On the tech regulation front, we believe that the government aims to transition the internet and data businesses to a more sustainable model. This will see the sector post slower growth compared to the under-regulated hyper growth phase of the past decade. However, this won’t preclude solid growth in demand for their services.
  • Unlike the views seen in western press coverage, we believe the regulatory rules are largely set and the campaign is in a “tying up loose ends” phase. This would be consistent with central policy pivot towards supporting growth.

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