China Has to ‘Put Action Behind Words’: Analysts on Policy Vows

© Reuters. China Has to ‘Put Action Behind Words’: Analysts on Policy Vows

(Bloomberg) -- A pledge by China’s top leaders to boost economic stimulus is fueling hopes that a bottom is in sight for the nation’s beleaguered stock markets, with traders betting that a crackdown on the tech sector may end.

Chinese equities rallied Friday, with the Hang Seng TECH Index surging 10%, after the Communist Party’s Politburo vowed to spur growth and contain the country’s worst Covid outbreak since 2020. Technology shares led the gains.

The promise may provide a much-needed boost for Chinese equities, which have been pummeled by fears of slowing growth as Beijing’s Covid Zero strategy hurts consumption and investment. Still, recent policy measures have fallen short of expectations and investors will be looking for the authorities to deliver on the latest pledge.

Here’s a selection of comments from fund managers and analysts on the Politburo’s pledge:

Positive Policies Begin

“It reads like the the policies are taking a turn from preventing the uncurbed expansion of capital to ensuring policies make way for growth,” said Wu Xianfeng, a fund manager at Shenzhen Longteng Assets Management Co.

“I think that the ‘high pressure’ environment for tech is now past and we will see more market oriented and law-based action, instead of moves that seemed at a whim.”

The gist of the pledges are similar to Chinese Vice Premier Liu He’s comments “but we are in the process of witnessing policy implementation now.”

Moves May Tackle Lockdown Angst

The Politburo’s pledges are “a possible sign that the regulatory tightening on the sector may have peaked” and policy backstop is still there, said Wai Ho Leong, a strategist at Modular Asset Management SP Pte.

“It may be able to deliver a fiscal impulse centered on infrastructure spending, that is larger than the impact of the lockdowns.”

‘Near-Term Floor’

“The latest statements from China’s Politburo are very bullish for the market,” said Manish Bhargava, a fund manager at Straits Investment Holdings Pte.

While it is hard to accurately call a bottom in the volatile market, today’s move in stocks amid the Politburo’s comments “could imply that maybe some kind of a near-term floor is in place.”

‘Big Positive’

The vows from the Communist Party’s Politburo to support healthy growth of platform firms could be a “big positive” for their stock’s short-term movements, according to Willer Chen, an analyst at Forsyth Barr Asia Ltd.

However, it is unclear what the government means for “normalized regulation” as the talks read like more focus will be on “long-term and continued regulation for the sector”

More Action Needed

“Investors are hoping for the end of sector reforms in the tech space. If they get the clarity they need, then it’s likely we are off to the races.” said Justin Tang, the head of Asian research at United First Partners in Singapore

Still, policymakers “will need to put action behind words in order for the rally to be sustained”

Easing Regulations

On tech, “our view is that the regulations are likely to be a bit easier over the next year or so,” said Alexander Treves, head of investment specialists for Asia Pacific equities at JPMorgan (NYSE:JPM) JPM Asset Management. “Valuations in certain cases are looking really, really quite cheap.

“Given some of the Covid measures that we’ve seen, if they are going to meet their growth objective, there will likely be generally more supportive measures. That includes perhaps taking a less tough line on certain regulatory issues. We think that is very likely”