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China’s stimulus to drive stronger economic activity

China’s stimulus to drive stronger economic activity

China’s stimulus measures should support stronger economic activity in China next year, according to money managers.

Citywire AAA-rated Matt Colvin told Citywire Asia that the government's move from a borderline deleveraging stance to a growth stabilisation focus will be one of the tailwinds for Chinese equities.

Among the policies that have been carried out to support China’s growth include individual income tax cuts, credit support to private enterprises, more local government spending and accommodative monetary policy.

In its latest effort to support the slowing economy, China's central bank had on Wednesday unveiled several policy changes aimed at injecting liquidity into its economy.  

More specifically, the People's Bank of China will create a targeted policy tool to spur lending to small and private firms, according to media reports.

Structural reforms – if progressing well – are another positive catalyst for the market, Colvin, portfolio manager for fundamental active equity at BlackRock, said.

Since mid-October, the Chinese government has become more proactive in supporting growth.

‘We expect real GDP growth to decelerate further in fourth quarter this year and first quarter next year before policy support fully kicks in by second quarter next year,’ Harvest Global Investments said in its investment note.

Though expecting China's growth to continue to face downward pressure in the coming quarters, Harvest said fund flow trend into Chinese equities is happening against the backdrop of a global fund rotation from developed market (DM) to emerging market (EM).

The valuation of Chinese equities alongside EM peers have returned to a very low level.

‘With more signs of policy support by the China government emerging, we believe global investors are likely to reallocate their funds to China and other EM countries,’ Harvest said.

Unlike previously, policy easing this time could target more at the private sector and rely more on fiscal easing, while not reversing the hard-earned achievements in financial clean up and growth quality.

Harvest also said it expects broad credit growth to moderate in November and December, before improving in early 2019.

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