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(Bloomberg) — China’s Politburo meeting later this month will test Beijing’s commitment to supporting growth, with investors expecting targeted measures to bolster stability rather than a sweeping stimulus package.
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As they seek fresh catalysts ahead of the gathering, some investors are adding shares in financials, insurers, healthcare and tech, betting Beijing will step up fiscal support and sustain innovation. Bond traders expect ample liquidity but remain cautious about potential growth measures that could weaken demand for safe havens.
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Here is what investors and analysts are saying, and how some are positioning:
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Eva Lee, head of Greater China equities at UBS Global Wealth Management’s chief investment office
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- Maintains positive view on China equities and expects the Politburo meeting to be supportive, though not deliver bazooka-style stimulus; expects volatility to stay elevated over the next 1-3 months
- Favors positions in AI infrastructure, semiconductor equipment, quality financials/insurers and power & equipment/grid operators, which could benefit from an accelerated rollout of fiscal spending
- Also favors adding CNY exposure to USD-based portfolios for currency diversification
- Sees gradual yuan appreciation, supported by attractive valuations, strong FX conversions and firmer People’s Bank of China fixings, though gains are likely to be limited as policymakers prioritize accommodative policy amid weak growth and inflation
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Yongbin Xu, co-chief investment officer at U-Shine Investment Group
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- Maintain a convergence trade of receiving two-year interest-rate swaps versus shorting government bonds, reflecting expectations for the upcoming meeting
- Increased a curve-flattening trade by going long 30-year government-bond futures and short five- and 10-year contracts
- Markets expect officials to at least signal more forward-looking and flexible policymaking and make greater use of existing monetary tools, a backdrop that would support bonds
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Homin Lee, a senior macro strategist at Lombard Odier Singapore Ltd.
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- The leadership is likely to strike a more pro-growth tone, with added emphasis on stabilizing domestic demand and advancing technological innovation
- Remains constructive on both onshore and offshore opportunities in tech and consumer sectors
- Prefers Chinese equity market within emerging market equity allocation
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Laura Wang, chief China equity strategist at Morgan Stanley
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- Investors remain cautious ahead of the Politburo meeting and CXMT’s expected IPO, watching for signs that policymakers will respond to soft second-quarter growth and weak domestic demand
- Policymakers are likely to accelerate the rollout of the remaining in-budget fiscal quota, rather than introduce a supplementary budget
- They will also likely continue to prioritize technology self-sufficiency, advanced manufacturing and energy security over broad-based consumption support
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Johanna Chua, head of emerging markets economics at Citigroup Inc.
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- Expects measured support from policymakers, with stronger rhetoric on domestic demand, accelerated fiscal deployment in the second half and continued emphasis on utilizing existing policies
- Likely focus in consumption will be on supply-side measures for services, with direct demand-side stimulus largely absent
- Capital markets are set to receive renewed policy attention amid recent market volatility; That said, a policy pivot of the magnitude seen on Sept. 24, 2024 remains implausible to us
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