The outlook for China’s economy has deteriorated recently, but it still doesn’t look like the PBOC will ease policy much in response. We suspect that if the central bank were to have a change of heart, it would be quite disruptive to the country’s financial markets, which don’t seem positioned for much policy support. As a result, we think it would send the country’s government bond yields tumbling, while the renminbi could fall through the key 7.2/$ mark. However, monetary easing probably wouldn’t help China’s equity market much, and might even hurt it.
In view of the wider interest, we are also sending this Asset Allocation Update to clients of our Global Markets and FX Service.
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