Despite encouraging signals from policymakers in China, more concrete policy action will likely be required to sustain the recent positive market momentum.

MSCI China Index
Level, January 3, 2022 – present

Line graph showing MSCI China Index from January 2022 to March 2022

Bloomberg, Principal Global Investors. Data as of March 24, 2022.

Recently, Chinese stock market performance has been extremely volatile. During the first two weeks of March, on the back of intensified governmental regulations toward tech companies, delisting threats from the SEC, and geopolitical concerns, MSCI China plummeted 25%.

Following the pullback, some of the rhetoric from China's government changed. During a market-friendly speech on March 16, Vice Premier Liu He pledged to boost economic growth, indicated flexibility with regulatory reforms, and even promised greater support for real estate developers and internet platforms. Market reaction was swift—MSCI China has risen nearly 24% since.

Recall, however, that China's "whatever it takes" moment had some foreshadowing—the People's Bank of China did cut policy rates late in 2021, yet markets remained unconvinced, ultimately needing further reassurances directly from a credible policymaker to soothe nerves.1

While consensus expectations are for further rate cuts, as policymakers strive to achieve China's 5.5% GDP growth target, the road ahead may still be challenging. Concrete policy action to stabilize China's property market will likely be required to sustain this market rally. China's zero-COVID policy and activity restrictions will also weigh on consumption and sentiment in the near-term, while its relationship with Russia means the threat of U.S. sanctions will hang over markets. Although China may be resuming a market-friendly stance, it is still too early to call this a new dragon market run.

Readers of Quick takes on capital markets may recall our admiration for current Italian Prime Minister Mario Draghi, who in July 2012, as then president of the European Central Bank (ECB), delivered the "whatever it takes" speech that likely saved the euro-zone economy.


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