(Bloomberg) — Bearishness among foreign investors toward China’s bonds is easing after last year’s rout, with Pacific Investment Management Co. becoming the latest to warm up to the debt.
“We have turned neutral on China bonds for a number of weeks now, compared with an underweight bias at the beginning of the year,” said Stephen Chang, a portfolio manager at Pimco. “Data continue to show the Chinese economy losing momentum and the current monetary policy justifies a more neutral stance for us on duration.” Easing depreciation pressure on the yuan is also supportive, he added.
After a record exodus last year, global funds have started returning to Chinese bonds since May as bets for US interest rates to soon peak and Beijing’s monetary easing boost demand. But optimism has yet to fully take hold, with pricey valuations, a wide US-China yield gap and uncertainties over the yuan’s outlook deterring some investors.
It may take some time for sentiment toward China’s economy to recover completely, even after the Politburo, the country’s top decision-making body, adopted a supportive stance toward the private sector and housing market at its latest meeting, Chang said.
“It’s a matter of where those policies will come through — not only in terms of the exact measures, but also in terms of the timing of when they might become helpful,” he said. “While there is that desire to support growth for it to go back up as the Politburo signaled, the type of measures might be more difficult to implement this time around.”
The probability is also low for a meaningful rebound in Chinese property bonds. “Many Chinese developers will be facing maturity coming through in the next 6 to 12 months and their ability to meet timely payment of those bonds remains vulnerable,” Chang said.
Pimco is holding more of a neutral view on developers’ dollar notes, until industry support measures lead to a pickup in actual home purchases that would improve companies’ cash flows and credit profiles, he said.
While China’s economic fundamentals and policy direction bode well for its local-currency debt, the nation’s sovereign bonds remain expensive on a valuation basis, reducing its appeal relative to other government bond markets, according to Chang.
China’s yield curve is likely to steepen as potential further easing measures pressure the front end while extra bond supply points to lower conviction on longer tenors, he said.
The 10-year government bond yield has fallen since February and touched the lowest in almost a year this month.
Here are some other takeaways from the interview:
There may be quite incremental and modest rate cuts in China in terms of scope, but at least the direction is that the central bank will keep monetary policy accommodative
If the yuan were to stabilize and maybe even turn around from the recent depreciation, that may be a potential supportive factor for allocation to China bonds. The recent yuan fixings indicate that the PBOC may not want to see additional weakness. The CFETS Index for the currency may stabilize at current levels after the pullback this year
In Asia, Pimco is overweight South Korea due to the country’s preemptive rate hikes and stabilizing inflation; underweight Malaysia where rate hikes have been slow compared to other economies
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
