China shot in the arm already fading away? | Forexlive

The news here yesterday came after the domestic session closed but the Hang Seng index managed to capitalise and rallied to produce over 2% gains. The optimism was largely expected to carry over to today but the mood music hasn’t quite turned out that way. That despite domestic indices closing higher today. It doesn’t tell the whole story.

The Shanghai Composite and CSI 300 indices closed up by 0.6% and 0.7% respectively. However, they closed at the lows for the day with the latter falling back under 4,000 and returning to the post-October range. As for the Hang Seng, it opened with a gap up of over 3% but closed the day with a loss of 0.5%. Ouch.

As the dust begins to settle from the latest announcement by Beijing, investors are still holding reservations. Personally, I don’t doubt China’s commitment and ability to deliver on the monetary policy front. They’ve already stepped it up this year and one can reasonably expect that to continue next year. The change in policy stance is just a bonus to reinforce that sentiment.

The only thing I doubt is China’s ability to deliver on the fiscal side of things. They’ve been saying that they will do more for over two years now. And yet every time when Beijing should be making a strong commitment, they tend to flake. Just like they did back here in November in the most recent time.

If Beijing wants to reaffirm the faith of investors, they will have to deliver something at some point next year. Otherwise, the latest uptick in sentiment since October might end up falling away rather quickly. That especially with Chinese economic data still not being it towards the end of this year.