China Stocks Outperform in Asia on Bets for Policy Consistency

(Bloomberg) — Chinese stocks rose on Monday, outperforming the broader Asian market as traders digested the surprise news that China’s economic leadership team would retain several familiar faces.

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The moves to keep central bank Governor Yi Gang, Finance Minister Liu Kun and Commerce Minister Wang Wentao in place were pragmatic ones that may boost investor confidence at a time of uncertainty, given the suggestion of policy consistency, analysts said.

Stocks Hong Kong and on the mainland advanced, with the Hang Seng China Enterprises Index, a gauge of Chinese equities listed in Hong Kong, jumping as much as 2.6% in the morning session. A broader measure of Asian stocks was up 0.3%.

The upswing in Chinese stocks was a reversal from last week, when they sold off as the National People’s Congress lacked in major policy incentives.

READ: Chinese Stock Bulls Dealt a Blow as Congress Underwhelms

It’s still not clear who will replace Liu He as President Xi Jinping’s top economic official, although He Lifeng, who was named a vice premier on Sunday, has been widely tipped for the post.

Here’s a look at what experts are saying about the leadership reveal:

Hao Hong, partner at Grow Investment Group

“The market likes the continuity and Yi Gang is seen as a reform-minded technocrat and the market gives him credibility for his handling of the monetary policy during the pandemic,” he said. “Thus, he is market friendly.”

He noted, though, that the governor role “can also be a transition role, given his age. So he may or may not serve the full term.”

Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd.

“It is a surprise to the market,” Zhang said of Yi’s reappointment. The 65-year-old had been expected to step down after reaching the retirement age for ministers and being left off a list of top ruling party officials last year.

“I think this is a pragmatic choice, as the new leaders need professional experts to handle the complicated economic and financial challenges,” Zhang added. “The leaders understand the top priority is to boost confidence. This decision is one step in that direction.”

Ming Ming, chief economist of Citic Securities Co.

“The lineup suggests policy consistency will be emphasized as that’s needed for the economic recovery and support of certain industries,” Ming said. “No matter who becomes the PBOC governor, the policy direction won’t change too much.”

Hui Feng, senior lecturer at Griffith University

Hui suggested Yi’s reappointment may be an “interim arrangement.”

One rumored candidate for the governor job, central bank veteran Yin Yong, was recently made major of Beijing, and Hui said Xi may want to find a replacement so Yin can move to the PBOC.

“It also suggests that the leadership is not confident with the other rumoured candidates at a time when stability is priority,” said Hui, co-author of “The Rise of the People’s Bank of China.” He noted the “dire challenges” the bank faces in the short term, “namely the ballooning of public debt and great uncertainties in global economic and geopolitical arena.”

Christopher Beddor, deputy China research director, Gavekal Dragonomics

“It’s a completely reasonable choice,” Beddor said of Yi. “The leadership was clearly debating among several candidates in the run-up to this decision, and opted to go for continuity.”

“That should somewhat reassure markets, given the major government and party restructuring that the PBOC will face over the coming months,” Beddor added, describing Yi as “more of a heads-down monetary-policy technocrat than an influential policy entrepreneur.”

Bruce Pang, chief economist for greater China at Jones Lang LaSalle Inc.

The reappointments “indicate continuity in fiscal and monetary policies, as the leadership is fully focused on improving the economy,” Pang said.

The priority that authorities are placing on economic development has “significantly increased” since the Communist Party Congress took place last year, he added.

Qian Wang, Vanguard Group Inc.’s chief economist for Asia-Pacific

The senior leaders of the State Council, China’s cabinet, are close allies of Xi who share “a lot of trust,” Wang said, suggesting that policy implementation will be better coordinated now.

The staying of “strong technocrats” like Yi and Liu should complement the lack of national experience of some of the new leaders, she added.

One problem for China in the past few years was that the policy decision framework “was highly centralized while the policy implementation framework was highly decentralized,” she said. “That caused a lot of uncertainty and ambiguity on the ground when policies are rolled out and left markets and businesses confused.”

Fiona Lim, senior foreign exchange strategist at Malayan Banking Bhd. in Singapore

“Yi Gang’s reappointment likely to be welcomed by market” and at the same time “benign for the yuan,” Lim said, adding that market focus will likely shift toward the January and February activity data due Wednesday.

“Further evidence of recovery could spur more yuan gains,” she added.

Christopher Wong, foreign exchange strategist at Oversea-Chinese Banking Corp in Singapore

Yi’s reappointment “means a desire for a steady pair of hands to continue with current policy,” Wong said, adding that the PBOC may still lower the reserve requirement ratio, or the amount of cash banks have to keep in reserve, “to provide long-term liquidity and support the economy, as guided by officials.”

He expects the central bank’s monetary policy stance to remain “prudent.”

Khoon Goh, head of Asia research at Australia & New Zealand Banking Group

“Asia will have the benefit of China’s reopening rebound, even as goods exports remain weak in the near-term,” he said. “Any troubles in the US financial system are not seen as having much spillover effects to this part of the region. Therefore, we can expect Asian currencies to stay resilient.”

Galvin Chia, emerging markets strategist at NatWest Group Plc

“Monetary policy this year looks to be neutral,” Chia said, adding that it seems the consumer sector “is still doing well enough so far for them to be happy with wait and see.”

“I think the reopening trade looks more about a local sectoral rotation than anything on the macro side,” Chia said, added that “macro looks overwhelmingly like US-driven still.”

–With assistance from Tania Chen, Wenjin Lv, Chester Yung, Shikhar Balwani and Charlotte Yang.

(Updates with additional comments, stock moves.)