The ATF ALLINDEX Enterprise, Local Governments and Corporates indices posted strong performances on Monday, gaining 0.02%, 0.03% and 0.06% respectively, as markets were buoyed by expectations of further rate cuts in China.
The ATF China Bond 50 Index lost 0.07%.
Losses were seen within the China Bond 50 index, the flagship index, and the ATF ALLINDEX Financials, which retreated 0.07% and 0.03% respectively. However, these were largely on the back of a July 5 coupon payment by Bank of Hangzhou, which dragged down both indices.
The ATF Financials Index lost 0.03%.
Hangzhou Qianjiang New City Investment was a strong performer within the ATF ALLINDEX Enterprise, gaining 0.42%, followed by Heifei Construction Investment, whose bonds rose 0.19% to close at 99.24.
Meanwhile, Henan Province Tolling Highways Management bonds led gains in the ATF ALLINDEX Corporates, rising 0.53% and followed closely by Shaanxi Nonferrous Metals, which gained 0.48% and closed at 103.27. All constituents, bar one, of the ATF ALLINDEX Corporates rose.
The ATF Local Governments Index gained 0.03%.
Liquidity conditions in China’s economy have loosened significantly as a result of government efforts to support a broad economic recovery. This, along with government-backed media support to encourage investors to purchase shares to support the recovery, triggered a 5.7% surge in the CSI 300 index of Shanghai- and Shenzhen-listed shares. Meanwhile, the Hang Seng index, Hong Kong’s equity benchmark, jumped 4%.
The ATF Corporates Index climbed 0.03%
A bull stock market could have negative implications for bonds, Ting Lu, Chief China Economist at Nomura, warned in a research note.
The coming weeks are seen as a critical time for Chinese policymakers to implement easing measures in order to maintain the momentum of recovery. But the People’s Bank of China may decide to postpone them should the stock market become too buoyant.
Moreover, funds might be directed to the stock market away from the bond market, as they chase Chinese stocks listed on the mainland and Hong Kong, Lu said.
This story appeared first on Asia Times Financial.