Photo: scary toy clown on flickr
Two big headlines crossed from China this morning: 1) China announced a schedule for its leadership transition and 2) the Communist Party of China booted disgraced former leader Bo Xilai.”Simply put, the dust finally settled on new leadership,” writes Bank of America’s Ting Lu.
“These decisions will significantly reduce the political and economic risks perceived by both onshore and offshore investors. Note rumours about political infighting have significantly disturbed markets so far this year.”
Lu notes that political uncertainty was a hindrance for the economy:
The policy paralysis due to political struggles this year is the very reason why it might take longer than usual for the Chinese economy to recover. With the fight for the politburo standing committee membership over, top politicians will have to re-focus on economic policy making. We don’t expect a big stimulus, but policy easing/stimulus will stepped up.
He also expands on why the ousting of Bo Xilai is a positive:
Finally, sacking Bo Xilai is quite positive for the Chinese economy in the medium to long run. China does need political and economic reforms to address many of its problems such as income/wealth inequality, but populist and leftist schemes will derail China’s hard-won prosperity achieved by market-oriented reforms in the past three decades.
It’s also worth noting that the China’s Shanghai Composite rallied again today, which has traders buzzing today. This gets the index further away from the dreaded 2,000 level. Phoenix Partners’ Michael Block recently told us that traders fear a break below 2,000 would lead to a major drop.
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