China policy at the centre of market moves

The recent 20^th National Congress of the Chinese Communist Party meeting has left investors digging deep into the report for China policy directions. In an inflationary environment, with steep interest rate hikes around the globe, investors have a critical eye on economic policies. NN Investment Partners says that concerns about future policy direction have caused a sell-off in the Chinese financial markets.

President Xi Jinping has cemented his position as China’s top leader, only second to the influence of Mao Zedong, and has appointed loyalists to the Politburo Standing Committee.

“With hard-liners now set to prevail over the five years until the next Communist Party Congress, and probably beyond, investors fear more government intervention in the economy, further deterioration in the business climate, an increased focus on autarky and greater assertiveness in international relations,” writes Maarten-Jan Bakkum, Senior Emerging Market Strategist at NN Investment Partners.

Bakkum talks about the higher scrutiny of companies through China policy moves, which are now reflected in low private-sector credit demand and investment growth. The asset manager equates the subdued demand growth to this in addition to zero-Covid policies.

While the party summit had no direction on real estate policy, NN IP expected some stern action to stabilize the Chinese housing market considering the weak outlook. Bakkum expects a large stimulus package for the whole sector with decisive action to bail out or restructure distressed developers.

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