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The big story of the night came from China, where the perpetually brutalized Shanghai Composite snapped back by nearly 3%.So what’s the story? Morgan Stanley’s Matthew Holland explained in a short note.
Basically it boils down to: Decent data, talk of regulators giving insurers permission to invest in banks, the market rising above an important level, and generally positive sentiment towards the new Chinese leadership, that will will be development minded, and not too reform minded.
It had to happen sooner or later and today’s bark from the market which has been the globe’s dog caught plenty by surprise. There had been a slow move higher helped initially by the HSBC services PMI for the mainland shows another expansionary number but it was the 1% gap in 10 minutes that took the index back through 2000 that got the streetfired up as everyone looked for a catalyst for the move. A multitude of reasons cited with CIRC giving the insurers permission to invest in the banks the most discussed, the politburo making further noises on the plans for urbanization which should see up to 300m people move to to cities over the course of the next decade giving hope that the infrastructure investment will get a further shot in the arm. The overall sentiment post the NPC has been that the new government will be more conservative and not as reformist as their predecessors so this discussion hopefully putting reform and development back onto the agenda.
Morgan Stanley’s Helen Qiao has more on the noises coming out of the government:
The newly elected Politburo Central Committee released a statement rejecting extravagance and bureaucracy with 8 explicit requirements after their meeting on Dec 4. In addition, the authorities pledged to maintain “continuity and stability in macroeconomic policies, make them more targeted and effective, and predetermine or fine-tune these measures”.
Meanwhile, top policy makers kept policy continuity on the back of their assessment of the economy stabilizing and positive elements are increasing. On the other hand, they vowed to promote urbanization actively and stably in addition to promoting reforms in key areas such as tax reforms, resource price liberalization, healthcare reforms, SOE and rural reforms and social security reforms. These expressions are in line with our expectation of maintaining short-term policy stability, with the nuance of mentioning new structural reforms and the new government’s urbanization initiatives.
Most of it is fairly speculative, of course. Everyone will be watching to see if it can continue.