If you thought Friday was a blockbuster day for Chinese equities, you hadn’t seen anything yet, because on Monday, the Shanghai Composite had its best day since March of 2016.
Friday’s rally came despite disappointing GDP data and amid an aggressive effort to jawbone markets higher. The joint effort involved CSRC imploring local governments to avoid exacerbating the risk of liquidated collateral in pledged-share deals, the China Banking and Insurance Regulatory Commission reiterating the notion that what’s happening in Chinese equities isn’t a reflection of economic fundamentals and Yi Gang saying the PBoC will support financing for non-SOEs.
Over the weekend, Xi himself got in on the action, pledging “unwavering” support for private enterprise in a letter to entrepreneurs, seen by Xinhua. “Supporting the development of private enterprises is the Party Central Committee’s consistent policy,” Xi said.
So that’s that. At this is this:
That brings the two-day rebound in the mainland benchmark to ~6.5%. Small caps and tech shares fared even better, as the ChiNext surged a hilarious 5.2% to start the week:
Also helping matters on Monday was the release of a draft plan for personal income tax cuts. As Reuters notes, “the proposals include a deduction against tax of 1,000 yuan a month for interest payments on home mortgages, 800 to 1,200 yuan a month for rental payments, deductions of up to 12,000 yuan per year for a child’s education, and up to 60,000 yuan per year for medical expenses above a base amount.”
On top of that, PBoC advisor Ma Jun said more tax breaks could be coming in 2019.
Hong Kong shares were up on the day as well. The Hang Seng had its best session since early September.
This is a welcome reprieve for Chinese equities, coming as it does amid increasingly aggressive rhetoric from the Trump administration and a suggestion over the weekend from Steve Mnuchin that the U.S. Treasury might consider moving the goal posts when it comes to what constitutes currency manipulation.
The Shanghai Composite’s 10-day volatility has jumped to the highest levels since early 2016.
Let’s hope the relief rally continues, because if the 2015 experience is any guide, Beijing is about 10% on the downside away from starting to arrest people for selling.