Chinese stock markets experienced a vigorous rebound on Tuesday, achieving remarkable growth as mainland exchanges reopened after a week-long holiday. Investors rushed to capitalize on renewed enthusiasm spurred by recent government stimulus measures, contributing to a surge in trading activity. By mid-morning, mainland stocks had added a staggering $600 billion in market capitalization, with trading volumes exceeding one trillion yuan (approximately $142 billion) within just 20 minutes.
The blue-chip CSI300 index opened with a notable increase of 10% and concluded the morning session up 6%. The Shanghai Composite index reached its highest level since December 2021, climbing 5% to reflect a bullish market sentiment. Meanwhile, industrial metal prices soared, buoyed by expectations that the latest stimulus efforts will help stabilize the economy. Stocks in the semiconductor and construction sectors, seen as key beneficiaries of government spending, also enjoyed notable gains.
Conversely, Hong Kong’s stock market faced pressure, with the Hang Seng Index declining 6.8% as investors took profits after an initial wave of optimism. Analysts attributed this sell-off to the disparity in momentum between the mainland and Hong Kong markets, suggesting a period of consolidation after the recent gains.
BOC International (BOCI) noted that the momentum in China’s bull market is still in its early phases. They view this as an opportune moment for investors to establish long positions, particularly in technology stocks, construction materials, and consumer goods. Despite the potential for profit-taking and market corrections, the overall outlook remains optimistic. “The market is likely to stay resilient and continue its upward trajectory,” stated BOCI strategist Xu Peidong, emphasizing that fears of further economic slowdowns appear to be under control.
One of the standout performers was the CSI all-share semiconductor index, which skyrocketed by 16%. Construction and consumer staple stocks rose by 5.1% and 5.3%, respectively, the latter reaching a peak not seen in over three years. In contrast, Hong Kong’s index of mainland property developers suffered an 11% drop, signaling caution despite the prevailing positive sentiment elsewhere.
At a much-anticipated press briefing in Beijing, economic officials conveyed a strong sense of confidence in meeting their full-year economic goals. They announced plans to issue 200 billion yuan in advance budget disbursements and investment projects, underscoring a commitment to fiscal stimulus.
Market participants closely monitoring fiscal stimulus are eager for clarity regarding the scale of government support. The measure of 200 billion yuan has drawn attention, but estimates suggesting that something closer to 10 trillion yuan would be necessary to sustain market growth add to the tension.
Prior to the recent holiday, China unveiled its most aggressive economic stimulus measures since the pandemic began, with the CSI300 gaining 25% over five trading sessions. This enthusiasm resulted in the largest gains for both the CSI300 and the Shanghai Composite since 2008.
Looking forward, experts caution that market dynamics may shift. Bank of America analysts noted that the weighting of Chinese stocks in the MSCI Emerging Markets Index has risen significantly, which might lead to a self-reinforcing “pain-trade” as the year draws to a close. However, they maintain that the trend of buying across sectors could soon conclude, with increased focus on market momentum, fiscal backing, corporate earnings, the U.S. election, and future policy directions all influencing investor behavior.
As a reminder, the yuan experienced a dip, trading at 7.0502 per dollar, while five-year bond futures fell to their lowest levels since July before a recovery was noted during the economic officials’ press conference. This snapshot showcases a vibrant yet cautious approach to navigating the current market landscape, keeping in mind the intricate balancing act between optimism and profit-taking.