The Shanghai Composite had its best day in over 3 years on Friday, as the key stock market index surged over 4%.The source of the move seemed unclear at the time. Some were attributing it to the HSBC Flash PMI report, but that wasn’t a very satisfying answer. Yes, the number beat expectations, but it was only a slight beat, and lots of the data have been improving over the last few months, so this really didn’t take anyone be a huge surprise.
Now we know the real reason: A big official meeting known as the Central Economic Working Conference took place this weekend, and the result was that the government intends to keep policy very loose and accommodative.
Nomura’s Zhiwei Zhang summarized the conference in a note titled Government decides to keep 2013 policy stance loose.
We summarize the note in bullets:
- Monetary policy will remain loose.
- The government will not take action to curb property price appreciation in 2013.
- Structural reform work will probably take place in 2014, not 2013.
- Infrastructure spending will pick up.
- GDP forecast of 8.2% remains on track.
Bottom line: More aggressive easing with little concern for inflation. Bullish.
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