18 DECEMBER 2025
The Chinese authorities are now at least as influential as their US counterparts in setting the tone for global liquidity conditions.
So the chart below highlights a key support for risk assets as we head into 2026.
The People’s Bank of China (the Central Bank) has been consistently expanding its balance sheet in recent years, reflecting its ramp up in monetary support.
This means more liquidity has been flooding into the local financial system; a key driver of the recent rally in Chinese equities.
It’s safe to assume that some of the excess liquidity has also made its way beyond China’s borders, supporting risk assets in general.
With the Chinese economy suffering another growth setback, and deflationary pressures becoming more entrenched, the odds strongly favour this balance sheet expansion continuing into next year.
On a standalone basis, that creates a tailwind for domestic Chinese assets. And likely some foreign markets too.
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