Market Musings 290924:
China: a “Big Bang” stimulus, or just another failed take-off?
Podcast (click on title):
The employment puzzle: can central banks maintain stability?
Report (click on title):
Beijing’s gift to the market ahead of National Day holiday?
In recent days, Chinese authorities have attempted to tackle the deep-seated problems centred on their property market slump and the consequent hit to domestic consumption.
According to the Economist publication, “At Last, China Pulls the Trigger on a Bold Stimulus Package”. Beijing has launched a wide-ranging economics stimulus package, including (for the first time) a USD 114bn war chest to boost the stock market, with a range of further measures aimed at helping the property market. There are hopes for more fiscal stimulus from the Chinese government in the weeks and months to come to support domestic consumption. Given that the Chinese authorities have specifically targeted the stock market this time, a liquidity-leveraged stock market rally could have further to go.
Note that already for the year to date, the Hang Seng China Enterprises Index (HSCEI, in green) of mainland Chinese companies listed on the Hong Kong stock exchange has gained 27% since the beginning of this year, far outpacing even US stocks. Large-cap Chinese tech stocks have led the way, with the Hang Seng Technology index (HSTECH) up 30% and internet heavyweights such as Alibaba (BABA, in blue) +41% over this period.
Bear in mind that there could still be a long way to go for this current Chinese stock market rally - since 2021, Chinese stocks have been in a prolonged bear market, continuing through late 2022 and 2023 when the rest of the world performed strongly.
We wait to see if the Chinese government follows through with more policy measures to help real estate and consumption. If it does, then these cheap Chinese stocks could have a much bigger catch-up rally ahead…
Summary of latest round of China stimulus measures
Historically, given China’s huge role in determining global demand for industrial metals and copper in particular, we should not be surprised to note the high correlation between industrial metals prices on the one hand, and…
