Monetary Policy Could Keep China Bulls, Bears in Limbo
In a continued effort to shore up economic growth, China is looking to ease monetary policy. This could keep bulls and bears in limbo depending on whether it produces tangible results.
As reported by CNBC, this took markets by surprise given that the country hasn’t changed its monetary policy stance in 14 years. It’s the latest effort by the second largest economy to try and revive economic growth after a real estate development crisis a few years ago.
Stimulus measures earlier this year were initially met with praise. They were later criticized as potentially not being substantial enough to make an impact on economic growth. A shifting of monetary policy could signal that China’s economic woes could be worse than anticipated, but time will tell.
“Such a tone suggests that policymakers are deeply concerned about the economic outlook, given the sluggish domestic demand and the threat of another trade war,” said Larry Hu, chief economist at Macquarie.
As also mentioned by CNBC, China did try and resuscitate growth in September with a wave of stimulus measures. However, there are still signs that the country is experiencing deflationary pressures, lukewarm consumer demand, and an ongoing downturn in housing.
“Potential monetary easing leeway is much more limited than 15 years ago,” said Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank, who is forecasting a cut of 50 basis points over the next few years.
2 Sides of the Trade
Loosening monetary policy could shift in favor of corporations and individuals looking to borrow funds, leading to lower debt service costs. This could provide a much-needed boost for China’s economy, benefiting the Daily FTSE China Bull 3X Shares (YINN). It seeks daily investment results, before fees and expenses, of 300% of the performance of the FTSE China 50 Index.
However, lowering interest rates isn’t a miracle elixir to fix an ailing economy. China may need to look beyond just adjusting monetary policy. In the CNBC report, Gabriel Wildau, managing director of Teneo, mentioned that the monetary policy shift isn’t a “bazooka-style stimulus” that “will arrive immediately.”
That said, if a bearish sentiment prevails, traders can opt for the Direxion Daily FTSE China Bear 3X Shares (YANG). It takes the opposite side of YINN, giving traders the flexibility to profit in up or down markets.
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