On Monday, Chinese stocks experienced their most significant single-day increase in a week, reflecting renewed optimism among investors that the government is ready to deliver on its commitment to provide more fiscal support for the nation’s struggling economy. The CSI 300 Index ended the day with a 1.9% gain, maintaining its upward trend and achieving a 25% recovery from its lows in September.
The positive sentiment in the market was primarily influenced by Finance Minister Lan Fo’an’s remarks over the weekend, where he promised additional support for the beleaguered property sector and suggested the potential for increased government borrowing.
While specifics regarding financial figures that many investors were hoping for were not provided, analysts at Goldman Sachs Group Inc. viewed the announced measures as a sign of an increasing emphasis on fostering economic growth. Consequently, the firm has adjusted its projections for China’s economic expansion for both 2024 and 2025. The reaction from the market was particularly pronounced in the property sector, with a property index on the Shanghai Stock Exchange skyrocketing by 4.7%. Investors now expect that the Standing Committee of the National People’s Congress, the country’s foremost legislative body, will endorse additional budget allocations later this month, sustaining the rally sparked 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,” remarked Homin Lee, a senior macro strategist at Lombard Odier.
“Nonetheless, if the government postpones stimulus implementation until December, market optimism could diminish.” Recent economic data released over the weekend highlights the pressing need for further government intervention. Consumer prices remain under deflationary pressure, and production prices continued to decline in September. Additionally, trade data indicated that exports—one of China’s few economic bright spots—grew at a slower rate than anticipated last month. Meanwhile, in Hong Kong, the market reaction was more subdued, as the index of Chinese shares closed 0.5% lower following a significant 6.6% drop the previous week. Analysts indicate that market fluctuations may linger, especially if large-scale fiscal stimulus actions are postponed until year-end.
During Saturday’s briefing, Minister Lan emphasized that local governments would be permitted to utilize special bonds for the acquisition of unsold homes and hinted at the potential for issuing more sovereign bonds. Lan also suggested efforts aimed at reducing the debt burdens faced by local governments, signaling a possible budget revision in the forthcoming weeks.
While the lack of a substantial fiscal stimulus number was noted, economists at HSBC Holdings Plc, led by Jing Liu, characterized the government’s announcements as an “upside surprise.” They observed that the policy shift seems to be taking hold, with an improved risk appetite benefitting both stock and property markets. Despite the initial favorable reaction, market analysts remain cautious regarding whether this rebound will translate into a long-term recovery. Over the past several years, China’s markets have exhibited patterns of gains followed by losses as investors have responded to Beijing’s incremental approach to economic stimulus.
“The Ministry of Finance has taken steps within their power to instill hope in the market,” stated Xin-Yao Ng, investment director at abrdn Asia Ltd. “However, the upcoming U.S. elections and Federal Open Market Committee meetings in November could slow down the implementation of larger stimulus measures into December or beyond, keeping investors on edge and limiting near-term gains.”
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