The Strategist

China's stock market becomes the first to feel tightening of central banks monetary policies

03/26/2021 - 02:30

China's CSI 300 stock index has lost 15% since mid-February after central banks around the world began gradually cutting support to financial markets by raising benchmark interest rates.
"The Chinese stock market could become an example of the consequences of stimulus cuts - given that during the pandemic, the Chinese market was already the earliest indicator of what was happening," Bloomberg quoted Natwest Markets' China market analyst Peiqian Liu as saying. Experts point out that a year ago - when the pandemic first broke out - the Chinese stock market started falling first, while Western markets were still at highs. Similarly, in July, the Chinese market was the first in the world to recover after the most severe coronavirus restrictions were lifted.

As the economy slowly recovers, central banks in major emerging markets are now starting to raise interest rates - Brazil, Turkey and Russia have already done so. Last Tuesday, the Norwegian central bank said it may raise rates before the end of the year. It was the first of the developed countries to do so while the US Federal Reserve and the European Central Bank have not yet announced such intentions.

The start of gradual tightening of monetary policy and the effect it is having on the Chinese market has already led Credit Suisse analysts to downgrade a number of Chinese stocks from a "hold" to a "sell" recommendation. Darier Hentsch, director of Asia-Pacific investments at Swiss private bank Lombard Odier, this week notified clients that they had sold a number of class A Chinese stocks back in February, given the imminent prospects for monetary policy tightening.