Moody’s move raises pressure on Chinese government to support markets
Moody’s recent negative outlook on China has heightened concerns about the country’s economic health and stability, leading to increased pressure on the Chinese government to take more decisive action to protect its economy and markets.
The ratings agency flagged weakening growth prospects and rising municipal debt, prompting concerns about the sustainability of China’s economic growth. Moody’s move has also reignited fears that China could be headed towards a prolonged period of economic stagnation, resembling Japan’s “lost decades”.
Following Moody’s negative outlook, Chinese assets experienced renewed sell-offs and state bank interventions in the markets. Yuan Yuwei, founder and CIO of Water Wisdom Asset Management, labeled the situation as a “financial war” that could lead to reduced foreign investment in Chinese assets and increased funding costs.
In response to the escalating concerns, Chinese authorities have implemented a series of economic support measures and targeted steps to prop up the stock market. However, the effectiveness of these measures has been limited, with analysts pointing to the need for a credible longer-term roadmap to address structural weaknesses and restore investors’ confidence in the Chinese economy.
The recent announcement by China’s securities watchdog to promote reforms aimed at attracting more long-term capital into the market indicates a recognition of the need to instill confidence among investors. However, analysts remain cautious about the effectiveness of these efforts.
Rob Carnell, Asia-Pacific Head of Research at ING, mentioned that China has used multiple tools to spur demand but has seen limited results. Analysts also emphasize the importance of addressing local government debt and increasing fiscal spending to stabilize growth momentum and restore confidence in China’s future economic prospects.
Despite the concerns raised by Moody’s, not all rating agencies have revised their outlook on China. Fitch Ratings and S&P Global Ratings have not made any changes to their respective China credit ratings, indicating a divergence in opinion within the industry.
As concerns about China’s economic and market stability persist, investors and analysts are closely monitoring the government’s response and its ability to address the underlying challenges facing the economy. The pressure is mounting for China to deliver strong and effective measures to restore confidence and demonstrate a clear path for sustainable economic growth.