China plays perilous game of pump the stock market

Country Garden Services Holdings

30/09/2024 10:05

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Hudson Lockett
       HONG KONG, Sept 30 (Reuters Breakingviews) - Beijing has
reset the narrative - for now. The government's most recent
measures to try to bolster the housing and consumer markets have
sparked a rally in the country's biggest and most liquid
listings, onshore and offshore. The CSI 300 Index  .CSI300  of
Shanghai- and Shenzhen-listed stocks surged more than 8% on
Monday to clock a 27% jump from its low in mid-September. The
risk is that when policymakers flesh out their plans, they will
leave investors disappointed.
    The latest measures announced range from major cities
undoing home-purchase restrictions, to the central bank letting
borrowers renegotiate mortgages, to the government trying to
jump-start consumer spending. 
    Markets are pricing in gains that suggest officials will be
successful. The rally in China’s biggest and most liquid
listings has been outstripped by that of consumer stocks, which
have in turn been outdone by rising prices for shares in
developers: the MSCI China Real Estate index jumped by about a
third over the course of last week.
   Some of those gains simply reflect the low starting point for
Chinese shares. Prior to the recent slew of announcements,
Kweichow Moutai's  600519.SS  stock had fallen by roughly a
quarter in 2024 despite decent results and a share buyback plan
of up to 6 billion yuan ($856 million). The world’s biggest
spirits maker is now up almost 8% this year.     
    Hong Kong-listed Country Garden Services  6098.HK ,
meanwhile, has risen almost 60% from its recent low on Sept. 16;
that's far more speculative, as the property management
company's eponymous former parent about a year ago missed a bond
payment that helped precipitate a near-total reversal of foreign
inflows to Chinese stocks by the end of 2023. 
   It's difficult to track whether foreign funds are now diving
back in because Beijing ended daily readouts of the relevant
data in August. After so many false starts, global investors
remain reticent, with analysts at Morgan Stanley describing
further expected gains as a “tactical rally”.
    It could be that hope for yet more stimulus is driving
stocks up. It is also possible that government-backed buyers
have entered the fray, snapping up shares to boost sentiment
ahead of the days-long National Day holiday this week during
which mainland markets are closed.
    The real test will come when Beijing releases the details
for the various support measures it has announced. That will
reveal whether investors have called the market right - or
whether they're due yet another reality check.
    Follow @KangHexin on X
    
    CONTEXT NEWS
        China’s CSI 300 Index jumped more than 8% on Sept. 30.
It has now risen more than 27% from a low touched on Sept. 13,
with consumer stocks following property developers higher amid a
growing raft of support measures from the central government.
The latest increases follow a rally since Sept. 23 that is the
biggest weekly gain since 2008.
    The megacities of Shanghai, Shenzhen and Guangzhou on Aug.
29 removed restrictions on homebuyer eligibility while the
People’s Bank of China announced homeowners will be able to
renegotiate mortgage terms with lenders from Nov. 1.

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Graphic: Property and consumer sectors drive China stock rally  
 https://reut.rs/4etHFFB
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 (Editing by Antony Currie and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  LOCKETT/  
hudson.lockett@thomsonreuters.com))