On Monday, Chinese stocks recorded their largest single-day rise in a week, indicating a revival of investor confidence that the government is poised to fulfill its promise of providing enhanced fiscal aid to the country’s ailing economy. The CSI 300 Index concluded the trading session with a 1.9% increase, continuing its upward trajectory and marking a 25% recovery from the lows experienced in September.
This positive market atmosphere was largely driven by Finance Minister Lan Fo’an’s statements over the weekend, where he assured that more support would be offered to the struggling property sector and hinted at the possibility of increased government borrowing.
Although financial specifics that many investors were eager to see were not disclosed, analysts at Goldman Sachs Group Inc. interpreted the measures announced as a signal that there is a growing focus on stimulating economic growth. As a result, the firm has revised its forecasts for China’s economic growth for both 2024 and 2025. The market’s reaction was particularly strong in the property sector, with a property index on the Shanghai Stock Exchange surging by 4.7%. Investors anticipate that the Standing Committee of the National People’s Congress, the country’s top legislative entity, will approve additional budget allocations later this month, thus sustaining the upward momentum initiated by the stimulus measures from the People’s Bank of China in late September. “The Ministry of Finance’s forward guidance has worked to a degree by signaling a substantial new package at the central government level,” commented Homin Lee, a senior macro strategist at Lombard Odier.
“However, if the government delays stimulus implementation until December, the market’s optimistic outlook could wane.” Recent economic indicators revealed over the weekend underscore the urgent need for further government action, with consumer prices remaining under deflationary pressure and production prices continuing to fall in September. Moreover, trade data showed that exports—one of China’s few economic bright spots—grew more slowly than expected last month. In Hong Kong, market responses were more muted, with the index of Chinese shares closing down 0.5% after a significant 6.6% drop the prior week. Analysts suggest that market volatility may persist, particularly if large-scale fiscal stimulus efforts are postponed until year-end.
During a briefing on Saturday, Minister Lan highlighted that local governments would be allowed to use special bonds for purchasing unsold homes and mentioned the possibility of issuing more sovereign bonds. Additionally, he indicated plans aimed at alleviating the debt loads of local governments, signaling a potential budget revision in the coming weeks.
Although the absence of significant fiscal stimulus figures was acknowledged, economists at HSBC Holdings Plc, led by Jing Liu, described the government’s announcements as an “upside surprise.” They noted that the policy change appears to be gaining traction, with a better risk appetite positively impacting both stock and property markets. Despite the initial favorable reception, market experts remain wary of whether this uptick will lead to a sustainable recovery. In recent years, China’s markets have demonstrated a pattern of gains followed by losses, as investors have reacted to Beijing’s gradual approach to economic stimulus.
“The Ministry of Finance has implemented measures within their control to inspire confidence in the market,” remarked Xin-Yao Ng, investment director at abrdn Asia Ltd. “Nonetheless, the impending U.S. elections and Federal Open Market Committee meetings in November could hinder the rollout of larger stimulus initiatives until December or later, keeping investors on edge and potentially capping immediate gains.”
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