Chinese investors still hooked on stimulus

China’s equity investors aren’t quite ready to see Beijing scale back its efforts to support the economy.

Stocks started the week lower after improving data prompted traders to pare back their bets for additional stimulus. The Shanghai Composite Index rallied the next day after the central bank injected cash into the financial system, alleviating concerns over a liquidity crunch. Then came speculation officials had prepared a sweeping package to boost consumption, triggering a rally in carmakers and firms that sell household goods.

Despite some early signs of success from the government’s taxcut program, China’s economic stabilization has so far underwhelmed equity investors, who remain hooked on the prospect of further supportive measures. The first-quarter reporting season, which in China really shifts into gear in the coming weeks, may provide further clues on whether companies are starting to see a recovery in demand.


Where’s the cash?

There was some debate over whether the supply of cash in China is getting tighter. The People’s Bank of China decided to roll over only half of the funds coming due through one of its longer-term policy tools, but offered 160 billion yuan ($24 billion) of seven-day money. Tax dues are increasing demand for liquidity, with April and May peak payment season.

That briefly sent the overnight repurchase rate above 3 percent for the first time since 2015, though other longer-term rates remain relatively subdued.

The yuan jumped to the highest level in almost ten months against a basket of global peers on Thursday, after a stronger fixing from the central bank signaled Beijing is comfortable with the gains.