1. Newsroom
  2. Spotlight: China tightens modestly
Menu
Analisi 16.02.2017

Spotlight: China tightens modestly

Spotlight: China tightens modestly

What pitfalls and opportunities does this present?


China has tightened its monetary policy very modestly to curtail the growth of corporate leverage and more effectively price risk in money markets. Growth is unlikely to be impacted; it is sliding from 6.8% last year to 6.5% as stimulus abates. Similarly, the renminbi will continue to depreciate above 7.00 to the US dollar. For fixed income markets, long-dated onshore bond yields will rise and require investors to be selective in their exposure. Offshore issuance should increase as international rates are lower. In equities, higher yields and spreads make insurance and banks the beneficiaries. Infrastructure, property and consumer finance appear to be the sectors most at risk of a setback.

Discover our expertise on emerging equities

Key points

  • On Friday 3 February 2017 the Peoples’ Bank of China (PBoC) increased moneymarket interest rates for the first time in many years. This was aimed at moving administered interest rates closer to market-based rates without changing the benchmark lending rate. The era of rate cuts is at – or very close to – an end. China’s policy bias is no longer towards easing.
  • The impact will not slow the descent in GDP growth from 6.8% last year to 6.5% in 2017. Stimulation, if desired, could come from increases in funding available for banks to lend. Beijing will probably continue to allow USDCNH to rise (expected to breach 7.00). Beijing can also be expected to tighten rules on moving funds offshore ahead of the ruling party’s conference in the autumn.
  • These changes will introduce some opportunities for investors. Local currency bond yields will rise at longer maturities and possibly prompt more USD-denominated bond issuance. In equities, monetary tightening is bad for infrastructure but good for life insurance companies and the net interest margins of large state banks.

LOK Michael.jpg

Michaël Lok
Group CIO and Co-CEO Asset Management

Norman Villamin-1.jpg

Norman Villamin
CIO Private Banking

GAUTRY_Patrice_UBP_72dpi-9511.jpg

Patrice Gautry
Chief Economist

MCFARLAND Mark.jpg

Mark McFarland
Chief Economist, Asia

Newsletter

Sign up to receive UBP’s latest news & investment insights directly in your inbox

Click and enter your email address to subscribe

Expertise

Impact investing, il futuro comincia oggi

L’impact investing ha il compito di impegnarsi per risolvere i più pressanti problemi globali identificando interessanti investimenti a lungo termine.
Continua

Le news più lette

Analisi 15.10.2018

Global Equities: P/E de-rating in progress

Spotlight - The broad-based sell-off in global equities has fully retraced the gains made from February 2018’s lows. Even world beating technology shares have fully given up the 8% gains seen over the summer.

Analisi 17.10.2018

Impact investing, il futuro comincia oggi

L’impact investing si assume il compito di impegnarsi per risolvere i più pressanti problemi globali identificando interessanti investimenti a lungo termine.

Analisi 08.10.2018

The latest on the oil market

September saw WTI oil prices drop 4% during the first week of the month before rallying almost 12% to reach USD 75 per barrel at the beginning of October. The rally came as investors have been gauging OPEC’s ability to replace falling Iranian exports and declining Venezuelan production.


Altro da leggere

Analisi 13.11.2018

A bear market in crude oil: how long will it last?

Spotlight - The tailwind of tight supply that characterised the oil market in 2017 has receded in 2018.

Analisi 08.11.2018

Prospettive d’investimento UBP per il 2019

Opportunità e sfide in un mondo non più sincronizzato

Analisi 01.11.2018

US Congressional elections - November 2018

Spotlight - US Congressional elections are set to take place on 6 November.