World’s best, worst markets in China

World-beating government bond rally keeps going even as Shanghai equities give up gains

The diverging fortunes of China’s equity and sovereign-bond markets became increasingly apparent last week.

Stocks are under renewed threat as the Trump administration potentially dials up its campaign against what it sees as cybersecurity risks from China. Equipment makers trading in Shenzhen, Hong Kong and Taipei were hit hard on concern the US will succeed in persuading countries to avoid hardware made by companies perceived to have ties to the Chinese government.

November started off as an improvement for China’s equity investors, but the Shanghai Composite has now given up its gains for the month and is unlikely to avoid having its worst annual performance in a decade.

Ample liquidity

The story is entirely opposite for China’s government bond market, where a world-beating rally keeps going. The oneyear yield sank to its lowest since 2016 after falling below the US equivalent last week.

Bond bulls cite the country’s slowing economy and looser monetary policy, as well as growing demand for havens. One caveat: coupled with the yuan’s decline, the bond rally has made loweryielding Chinese assets far less attractive

Traders say there’s plenty of liquidity to go around, a factor that’s allowed the central bank to refrain from injecting cash into the financial system for 21 straight days — the longest stretch since daily operations began. Should liquidity get tighter around year-end, as it often does, they’re expecting the People’s Bank of China to step in.

It seems that every time Tencent Holdings Ltd bulls score a victory, it’s all but gone the next day. The biggest stock in Asia failed to hold above its 50-day moving average after closing above that level for the first time since June. to foreign investors.