Chinese stocks exhibited resilience in an otherwise turbulent morning session, managing to close higher as investors weighed the potential effects of recent support measures introduced by the finance ministry over the weekend. The CSI 300 Index saw an uptick of 1.5% during midday trading on Monday, recovering from an earlier low where it dipped by 0.5%. Notably, this rebound came after a challenging previous week, marking the index’s steepest decline since late July.
Investment analysts highlighted that the day’s price movements reflected a cautious optimism among traders, who are closely monitoring the specific details surrounding these fiscal measures. Finance Minister Lan Fo’an indicated intentions to enhance support for the real estate sector and suggested that the government might consider increased borrowing in a briefing that left many details ambiguous. Consequently, the prudent fiscal spending is viewed as vital for maintaining the momentum of the recent stock market rally, which was initially sparked by a barrage of stimulus measures from the central bank in late September.
According to HSBC Holdings Plc’s economists, led by Jing Liu, the lack of a substantial fiscal stimulus announcement came as a positive surprise. They pointed out that the policy shift seems to have a lasting impact, creating a favorable risk appetite that could lead to increased wealth effects in both the stock and real estate sectors.
Despite this optimistic outlook, the backdrop of troubling economic data has added layers of complexity to the market situation. Reports released on Sunday revealed that China’s struggles with deflation intensified in September, with consumer prices remaining subdued and producer prices continuing their downward trajectory. In response, various government departments confirmed a renewed promise to bolster policy support for businesses during another briefing.
As part of measures to stimulate the market, local governments now have the ability to employ special bonds to purchase unsold residential properties. Additionally, Lan’s remarks suggested potential opportunities for sovereign bond issuance, signaling a possible adjustment to the national budget in the near future.
Market participants had anticipated a fiscal stimulus package around the 2 trillion yuan mark (equivalent to roughly $283 billion) last weekend, including customer vouchers and financial incentives aimed at families with children. However, the outcome of the ministry’s briefing did not meet those expectations, prompting concerns about whether the market’s latest rally is sustainable or merely a temporary rebound following previous fluctuations.
“In light of upcoming events, including the November US elections and the Federal Open Market Committee (FOMC) meeting, I suspect major stimulus efforts might be postponed until December or later. As such, investor participation might wane ahead of those pivotal developments, limiting potential upside for the market in the interim,” opined Xin-Yao Ng, an investment director with abrdn Asia Ltd.
As the economic landscape continues to shift, the pivotal question remains whether the various stimulus measures will have the desired effect on market stability in the months to come. The stock market’s trajectory in the next few weeks will undoubtedly depend on both global events and the Chinese government’s commitment to bolstering economic confidence amid ongoing uncertainty.
With these dynamics in play, investors will be keenly observing the government’s next moves, striving to glean insights into the overarching economic direction and the future viability of the Chinese stock market.