With mainland Chinese stocks struggling to bounce off five-year lows, it is starting to look like Beijing is poised to take action. At least that’s what Clocktower Group chief strategist Marko Papic thinks. He told me last week that he thinks Chinese stocks could see short-term gains of 10% or more in the coming days, based on a Bloomberg report on Chinese President Xi Jinping’s potential meeting with financial regulators. But in markets, Papich is watching Chinese government bond yields rise. “One of the best deals in Chinese assets was long bonds, which were the best performers in the world,” Papich said. “My question is whether the economic recovery will be in [the] Will the Chinese economy and stock market end this multi-year Chinese bond rally? – he said. – Something to think about for global bond investors. When profitability starts to rise, you will know [it’s a] lower [in the] According to Wind Information, bond prices fall when yields rise, and vice versa. Chinese 10-year government bond yields are trading around 2.6%, compared with just over 4% for U.S. peers, according to Wind Information. If Chinese bond yields start to rise, it “will likely indicate investor rotation,” Papich said. “It’s unclear whether those investors are willing to buy stocks.” The Shanghai Composite Index closed more than 1% higher on Thursday, helping the index compensate part of their losses for 2014 on the last day.” Mainland Chinese stock markets are closed and will not reopen until Monday, February 19th. We think China will have to address investors’ core concerns, i.e. the real estate sector/economy and US-China relations,” Nomura analysts said in a note on Wednesday. They expect that if sentiment remains weak, there is still room for foreign capital to grow. sell shares of mainland China and Hong Kong. Thursday’s consumer price data was not encouraging, showing another month of weak demand, including in sectors such as tourism. Thursday’s stock market gains also followed news that Beijing announced late the previous night that it had fired Yi Huiman as head of its securities regulator and replaced him with Wu Qing, who once oversaw the Shanghai Stock Exchange. For Eurasia Group, this change was a predictable result of Xi Jinping’s high-level intervention. Analysts said Chinese officials began developing a strategy for managing domestic equity investments earlier this year and had previously acknowledged to the consulting firm that it would “require changes in both the macroeconomic environment and the profitability of listed companies.” “But by January, many of these same contacts had rolled their eyes at the leadership’s continued focus on propaganda, security and administrative control,” Eurasia Group analysts said in a report. “These political signals reinforce Eurasia Group’s expectations for a continued gradualist approach to economic policy and growth policies, as well as a preference for tighter financial regulation.” The ongoing debate in markets will continue after China returns from a week-long break, the biggest holiday of the year. The Hong Kong Stock Exchange is closed for holidays only on February 12 and 13. “For now “Once near-term liquidity risks have been mitigated, investors may refocus on this year’s inflation/housing market trends, watch earnings growth and analyze macroeconomic policy signals,” UBS equity strategists said in a report on Wednesday. Their Best A Shares In mainland China, those with the greatest expected growth potential are solar energy supplier Sungrow and semiconductor equipment maker Naura Technology, both of which are listed in Shenzhen, and Tuopu, a Shanghai-listed auto parts supplier to Tesla. UBS analysts expect Sungrow shares could more than double from Tuesday’s levels, while Tuopu shares could rise 90% and Naura Technology could see gains of more than 50%. — CNBC’s Michael Bloom contributed to this report.
