Inflation is on the decline for the third consecutive month in China, giving policy makers more options to help kick-start the sputtering economy. Investors are speculating that Beijing may ease monetary policy, giving Chinese stocks and focused exchange traded funds a chance to rally.
“The CPI data will give the Chinese government more flexibility to stimulate the economy, so I think that’s a good sign for the market,” Cedric Ma, senior investment strategist at Convoy Asset Management Ltd., said on Bloomberg Businessweek. “Italy seems to have some political settlement in terms of their austerity policy and that’s helping market sentiment.” [China ETF Soars 30% From October Low]
A waning inflationary outlook may give Premier Wen Jiabao the chance to ease fiscal and monetary policy as the economy was about to feel the effects of a credit crunch.
For the month of October, China’s consumer price index rose 5.5% from one year ago, down from 6.1% in September, according to Robert Li for Dow Jones Newswire. [The Contrarian: Downtrodden Global ETFs For Bargain Hunters]
“The data should be quite positive to market sentiment,” Ting Lu, an economist at Bank of America-Merrill Lynch, said. “As inflation worries ease, the room for fine-tuning monetary tightening is getting bigger. Policy makers might still put taming inflation as a top priority, but we will see policies to be increasingly nudged towards pro-growth.”
Over the short-term, market consolidation is still a large factor, especially as investors watch what the near future holds for Italy, and the Eurozone at large.The markets are reacting to news that Berlusconi is going to step down after the vote for approval of an austerity plan takes place next week. [China ETFs Rise on Manufacturing Data]