On Monday, Chinese stocks marked their largest single-day rise in a week, indicating a resurgence of investor optimism that the government is poised to fulfill its promise of enhanced fiscal support for the country’s ailing economy. The CSI 300 Index concluded the day with a 1.9% increase, continuing its upward momentum and achieving a 25% rebound from its September lows.
The revival in market sentiment was largely driven by Finance Minister Lan Fo’an’s comments over the weekend, in which he assured further backing for the struggling property sector and hinted at a potential rise in government borrowing.
Although specific financial details that many investors awaited were not disclosed, analysts at Goldman Sachs Group Inc. interpreted the announced initiatives as a signal of a growing focus on spurring economic growth. As a result, the firm updated its forecasts for China’s economic growth for 2024 and 2025. The market response was particularly robust within the property sector, with a property index on the Shanghai Stock Exchange surging by 4.7%. Investors are now anticipating that the Standing Committee of the National People’s Congress, the nation’s highest legislative authority, will approve additional budget allocations later this month, furthering the rally that was ignited by the stimulus measures from the People’s Bank of China in late September. “The Ministry of Finance’s forward guidance has had some effect by signaling a substantial new package at the central government level,” noted Homin Lee, a senior macro strategist at Lombard Odier.
“However, if the government delays stimulus implementation until December, market enthusiasm could wane.” Recent economic data released over the weekend underscores the urgent need for increased government action. Consumer prices are under deflationary pressure, and producer prices continued to fall in September. Furthermore, trade figures revealed that exports—one of China’s few economic bright spots—grew at a slower pace than expected last month. In contrast, Hong Kong’s market reaction was more muted, with the index of Chinese shares finishing 0.5% lower following a substantial 6.6% drop the previous week. Analysts suggest that market volatility could persist, especially if large-scale fiscal stimulus initiatives are deferred until the end of the year.
During Saturday’s conference, Minister Lan underscored that local governments would be allowed to use special bonds for purchasing unsold homes and hinted at the possibility of issuing more sovereign bonds. He also pointed out efforts to alleviate the debt burdens on local governments, suggesting a potential budget reassessment in the upcoming weeks. Although the absence of a major fiscal stimulus figure was noted, economists at HSBC Holdings Plc, led by Jing Liu, described the government’s announcements as an “upside surprise.” They observed that the shift in policy appears to be taking effect, with an improved risk appetite benefiting both stock and property markets. Despite the initial positive response, market analysts remain wary about whether this rebound will lead to a sustainable recovery. Over recent years, China’s markets have shown trends of gains followed by losses, as investors have reacted to Beijing’s gradual approach to economic stimulus.
“The Ministry of Finance has taken measures within their capabilities to inspire confidence in the market,” said Xin-Yao Ng, investment director at abrdn Asia Ltd. “However, the approaching U.S. elections and Federal Open Market Committee meetings in November could delay the rollout of larger stimulus initiatives into December or later, keeping investors apprehensive and restraining short-term gains.”
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