Get ready: Volatility may indicate markets reopen in China on Friday

(Bloomberg) — China’s financial markets reopened for the first time in a week on Friday, and investors braced for volatility after a sudden tumble in real estate and a global energy shortage.

The Golden Week holiday provided a rare respite from the months-long regulatory assault that shook global financial markets. With trading reopening, investors will focus on the Beijing government’s next target and the impact of a dollar bond default by developer Fantasia Holdings this week, a first in real estate since the turmoil surrounding China’s Evergrande.

There will be a lot of interest in how the People’s Bank of China manages to keep liquidity flowing, given the large amount of short-term debt maturing this month. On Friday, when internal markets reopen, about 340 billion yuan ($53 billion) is scheduled in 14-day reverse repo agreements.

Hong Kong-listed Chinese stocks are down 0.2% since mainland China markets last traded. On Wednesday, indexes fell to levels not seen since the Chinese stock bubble burst in 2016, but rebounded on Thursday. The marine yuan showed a slight discrepancy.

The mood among Chinese investors “recently recovered to a neutral level, but the trend is definitely down and gains are limited by recent domestic defaults,” said Olivier Dassier, head of applied research for Asia Pacific at Contigo. “The main issues affecting confidence have so far been purely internal, but on the geopolitical front, US-China trade negotiations have not yet taken place, and this issue remains unresolved.”

Relations with the United States are on the radar after news that President Joe Biden is planning a virtual meeting with Xi Jinping by the end of the year. US Trade Representative Catherine Tai is also expected to speak with Vice Premier Liu He in the coming days as the two countries remain at odds over China’s commitments under the January 2020 trade pact.

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