Chinese stocks experienced significant volatility as investors eagerly anticipated insights from the Ministry of Finance (MOF) regarding upcoming fiscal policies. After fluctuating throughout the day, the CSI 300 Index concluded with a 1.1% increase, marking a notable recovery from its previous session, during which it plummeted by 7.1%, the most severe drop since early 2020. Meanwhile, shares of Chinese companies trading in Hong Kong surged over 3%, coinciding with the city’s upcoming holiday.
Market analysts have their sights set on the MOF’s scheduled briefing, hoping it will provide vital catalysts to maintain the rally that began in late September. This surge followed the government’s announcement of a substantial monetary stimulus package. However, the lack of significant fiscal measures has raised concerns among investors, who warn that the recent gains could merely be a fleeting moment if they aren’t backed by solid financial commitments.
Finance Minister Lan Fo’an is poised to unveil potential strategies aimed at enhancing fiscal policy to bolster economic growth. At the Saturday briefing, which is set to kick off at 10 a.m. local time, he is expected to address inquiries from the press and outline steps to increase government spending.
Jeffrey Kleintop, the chief global investment strategist at Charles Schwab & Co., emphasized that investors are clinging to the hope that the MOF will authorize additional government bond issuance, beyond this year’s budget, as a means of supporting fiscal expenditures. However, he cautioned that expectations are running high.
Expectations are also reflected in the opinion of Bernstein Societe Generale Group’s Asia quant strategists, who have maintained a cautiously optimistic view on China. They anticipate “concrete announcements” either during the MOF’s briefing or after the upcoming U.S. elections.
In another development, China’s central bank introduced a swap facility aimed at providing liquidity to institutional investors for stock purchases, which is part of the broader stimulus measures announced last month. Starting Thursday, eligible securities firms, funds, and insurance companies can apply for highly liquid assets, including government bonds and central bank bills, provided they offer acceptable collateral. Initially, the facility has a size limit of 500 billion yuan, with future expansions possible.
Since reaching a low point in September, the CSI 300 Index has soared over 30% before it faced a downturn on Tuesday as many traders chose to lock in profits amid frustrations about the speed of Beijing’s stimulus rollout. The sustainability of this upward momentum will depend on the scale and immediacy of forthcoming policy measures, particularly as indications of lackluster holiday spending have shown that the economic landscape remains precarious.
Market turnover on Thursday reached approximately 2.13 trillion yuan ($301 billion), a decrease from the record 3.43 trillion yuan on Tuesday and down from 2.93 trillion yuan the previous day.
Analysts suggest that the MOF might discuss a supplementary fiscal strategy for the remainder of the year, although it is expected to be modest. Morgan Stanley economists speculate that while some additional support may be forthcoming, the government is unlikely to announce a large-scale stimulus package in the range of 5 trillion to 10 trillion yuan all at once.
In related market activity, the yield on China’s 10-year government bonds dropped by four basis points to 2.145%, and the yuan appreciated by roughly 0.1% in both onshore and offshore markets. Experts warned that any modest fiscal package could lead to renewed sell-off pressures if investor expectations are not met. Billy Leung, an investment strategist at Global X Management in Sydney, highlighted the cautious sentiment among investors, noting that volatility is likely to persist until there’s clearer guidance regarding the fiscal outlook for 2025.
As the markets gear up for the weekend briefing, participants remain vigilant, and market dynamics could shift dramatically based on the information released.