Asia wrap: If at first you don’t succeed, keep trying, so the story goes in China
|Asian stocks saw a solid lift today, riding the coattails of Wall Street’s rally, but a welcome spark came from China’s big banks slashing their benchmark lending rates. This move injected a fresh wave of optimism into markets, fueling the hope that China’s recent stimulus efforts might finally be gaining economic traction. Investors are juggling their bets on the solid U.S. and hopefully recovering Chinese economies while global geopolitical tensions and looming U.S. election risk hang in the background like storm clouds.
Sure, the rate cut wasn’t a shocker, but the market is banking on the idea that the combined impact of all these recent measures could at least stem the economic bleeding. However, the reality seems to be that the Chinese Communist Party is desperately trying to harness the wealth effect from local equities to keep morale high. It’s a classic case of "hope floats" until the actual economic recovery kicks in—whenever that might be. Just look at Friday when Xi Jinping sent PBoC Governor Pan Gongsheng to pump some life into the markets with a pep talk, and guess what? It worked. Mainland and Hong Kong-listed stocks surged, the kind of response Beijing was banking on.
But let’s not get ahead of ourselves. The elephant in the room remains China's property market. Without a clear bottom in sight, any broader economic recovery is going to be on shaky ground. Hyping up the recovery—it’s simply wishful thinking until this property mess is cleaned up. The problem isn’t just the glut of uncompleted homes in lower-tier cities, it’s that previous attempts to revive the sector have flatlined. Beijing’s expanded ‘white list’ of projects eligible for bank support has barely scratched the surface. Until China’s leadership rolls out large-scale, cold hard cash to boost consumer spending, Chinese households will be stuck in the economic doldrums.
Now, let’s address the real issue. The Party’s governance is certainly a concern, but from an investment angle, Xi Jinping himself is the problem. His leadership has thrown up roadblocks to the kind of economic dynamism China needs right now. And while the world may still be figuring this out, I have a feeling the Party isn’t blind to Xi’s shortcomings either. Something has to give; until it does, China’s economic engine will continue sputtering.
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