Beijing resolves; Wall Street goes bullish on Chinese stocks

On Friday, the Chinese Communist Party concluded a meeting that makes the present president Xi Jinping a lifetime president of China. This resolution was reached after consideration of his role in transforming the country into an economic superpower. 

This news doesn’t only bring cheer to the major economic players within the Great Walls but also inspires a promising end of week for markets at the other end of the world. Today, major Asian indices trading on major exchanges like eToro saw significant growth. The NIKKEI 225 Index was up 1.1% at midday on Friday. Now, Wall Street isn’t missing the party. 

Goldman Sachs leads the way.

Despite its troubling property crisis earlier this year and several shocks from changing US regulatory policies, the investment banking giant has backed Chinese stocks at the open of the market today. It is believed that, after the Communist Party meeting, the pressure on Beijing will soften and Chinese companies will find the freedom to explore growth opportunities. 

The actual rationale for this judgment by Goldman Sachs’ highly sophisticated team of analysts is still unfounded. However, several factors appear to be in favor of the Beijing-registered corporations trading in the NYSE with several CFDs traded on top online platforms like eToro. But what other factors could be driving the bullish sentiment towards Communist-throttled stocks?

Strong US inflation reports jolts Beijing into competition

As the cold fight for world power builds up, the United States is having a tough recovery from the global pandemic. With several bailouts and emergency spending aimed at keeping the country’s economy afloat, expectations on inflation have been negative for the last couple of months. 

In October, the US saw the consumer price index rise 6.2% YoY, the highest point since 1990. In response to the strong US inflation reports, Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities commented that “[inflation] is obviously a risk to watch. But stock prices will face a major crash only if the Federal Reserve turns out to be completely wrong in its assessment and is forced to raise interest rates rapidly.”

Will this be the case? Are investors expected to tread this euphoric thin line with caution? 

Chinese bond market takes a slight hit

In response to the strong inflation reports on Friday and Evergrande’s debt crisis, foreign investors are pulling away from China’s dollar bonds markets for safety reasons. However, Yu Yongding, a former adviser for the People’s Bank of China, believes that the Evergrande’s financial crisis is controllable and its impact has not affected the world financial market significantly. 

Despite the sentiment expressed by investors, Beijing still holds a strong position in the world capital market as Yu observed. This may be influencing Wall Street’s confidence in backing Chinese stocks on this bleakly ending mid November week. 

China’s strong retail demands could spur market confidence

Another underlying factor for Wall Street’s backing of Beijing stocks is the shopping experience from the Chinese Singles’ Day, yesterday. According to Associated Press, the country’s buyers spent a record $139.1 billion in one day’s retail shopping. 

This brow-raising retail turn out among Chinese citizens leaves Wall Street investors with so much optimism for profitability in the foreseeable future. Also, this behavior confirms the change in buyers’ psychological shift inspired by the coronavirus pandemic which, according to Yu Yongding, would be a major source of global uncertainty in the coming year.

Despite these good technical indications of positive market potentials, several thoughtful investors are yet to get on board. This delay is probably because these market changes are happening on the weekend. And with only 70 out of 248 listed Chinese stocks trading over the counter, early takers may have to hold on to their shares until Monday regardless of the outcome.