China’s leadership has taken a surprising turn in monetary policy, signaling a shift to a “moderately loose” stance. But experts weigh on when a big stimulus would be introduced.
What Happened: China’s leadership surprised markets on Monday by indicating a shift in monetary policy after 14 years. The change to a “moderately loose” stance, last used during the 2008 financial crisis, reflects deep economic concerns, CNBC reported on Thursday.
Experts, including Larry Hu from Macquarie, suggest this shift signals worries over sluggish domestic demand and potential trade conflicts. Despite recent stimulus efforts, China’s economy faces deflationary pressures and a housing market slump.
Gabriel Wildau of Teneo noted that Monday’s announcement does not signal that a "bazooka-style stimulus will arrive immediately.” He added that China’s previous massive stimulus package was 13% of its GDP.
Recent measures include a five-year, 10 trillion yuan stimulus to address local government debt. However, economists like those at Morgan Stanley believe further fiscal expansion is needed. The People’s Bank of China has been cautious with rate cuts to avoid capital flight.
Why It Matters: The shift in China’s monetary policy comes as U.S.-listed Chinese stocks, such as Alibaba Group Holding BABA, JD.com, Inc. JD , and Baidu, Inc. BIDU, have shown increased volatility. As of Thursday, according to Benzinga Pro data, the YTD returns of Alibaba increased by 19.02%, JD.com rose by 40.48% but that of Baidu fell by 22.52%. This increase is attributed to the anticipation of China’s annual economic planning meeting, where financial goals and further stimulus measures are expected to be discussed.
Meanwhile, global markets have shown mixed reactions. On Dec 10, U.S. markets closed lower as investors awaited key inflation data that could influence the Federal Reserve’s interest rate decisions.
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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
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