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(Bloomberg) — Chinese financial markets will trade for the first time this month on Friday and for once, investors can look forward to a relaxed start.
The yuan is up 0.7% in offshore trading since its onshore counterpart last traded on Sept. 30, signaling more gains are ahead after the currency’s best quarter since 2008 versus the dollar. Eyes will be on how the People’s Bank of China responds with its 9:15 a.m. yuan fixing. It has recently allowed for a stronger currency, while at times acting to limit volatility.
FTSE China A50 Index futures have risen 2.2% since the $9.4 trillion mainland stock market last traded. The Hang Seng China Enterprises Index, a gauge of mainland companies listed in Hong Kong, has gained 2.4% in that time.
Also, a large maturity scheduled for Friday shouldn’t spook traders, unlike the record liquidity event that in February prompted officials to flood its money market with cash. Banks are due to repay 560 billion yuan ($82 billion) in short-term funds, but the cash was largely offered to address quarter-end needs for lenders. A net injection is unlikely, while a cut to the cost of the loans would be unexpected.
China is unique among major economies to close its financial markets for long periods several times a year. Back in February stocks were hit by a ferocious wave of selling and the yuan weakened past a key level against the dollar, as a rapidly evolving coronavirus emergency gripped markets. In May 2019, the CSI 300 Index sank as much as 4.8% on its reopening day after a series of tweets by President Donald Trump undermined confidence in a trade agreement.
This time around, Trump’s illness is the focus of attention but market impact has so far been limited globally. The Shanghai Composite Index starts October up nearly 6% for the year, among the world’s best-performing major indexes. Also this has been the best month of the year for the benchmark, rising an average 2.5% each October since 2010.
“Things look a lot different now than they did in February,” said Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd. “Chinese markets will have a calm reopening. Tech names and consumer staples should play catch-up, as they have gained in the offshore market during the break.” He added that investors will focus on the annual Communist Party meeting at the end of the month, in which Beijing is expected to launch further policies to stimulate demand.
The offshore yuan has gained 0.7% during the holiday as of 4:18 p.m. Thursday in Hong Kong, making it one of the better performers in Asia. Recent gains in the Chinese currency have triggered debate as to whether it’s a safe haven like the greenback and the Japanese yen. While the yuan may be attractive due to its high interest rate and signs that China’s economy is recovering, it is under Beijing’s tight control and capital curbs.
How China’s government bonds perform from the market’s reopen will depend on the central bank’s stance on monetary policy, which was the major factor driving the securities last month. The 10-year notes slid for a fifth straight month in September, the longest run since 2007, amid investor concerns about a liquidity shortage. Another source of stress on the debt would be U.S. Treasuries, as Chinese bonds often follow movements in the U.S. debt. The 10-year yield on the American bonds climbed nearly 10 basis points over the past week.
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