Chinese Stocks Surge as Investors Pin Hopes on Beijing’s Economic Support Promises

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Chinese stocks saw their largest one-day gain in a week on Monday, signaling renewed optimism among traders that the government is prepared to follow through on its promise of increased fiscal support for the country’s struggling economy. The CSI 300 Index closed 1.9% higher, continuing its upward momentum and marking a 25% rebound from its September low.
This positive market sentiment was largely driven by a weekend briefing from Finance Minister Lan Fo’an, who pledged additional measures to support the ailing property sector and hinted at expanded government borrowing.

While the briefing fell short of offering a concrete dollar figure that many investors had anticipated, analysts at Goldman Sachs Group Inc. interpreted the measures as an indication of a growing focus on stimulating economic growth. As a result, the financial giant has upgraded its economic expansion forecasts for China in both 2024 and 2025.The market response was particularly strong in the property sector, with a Shanghai Stock Exchange property index surging 4.7%. Investors now anticipate that the Standing Committee of the National People’s Congress, China’s top legislative body, will approve additional budget funding later this month, helping to sustain the rally ignited by the People’s Bank of China’s stimulus efforts in late September.“The Ministry of Finance’s forward guidance has worked to a degree by signaling a substantial new package at the central government level,” said Homin Lee, senior macro strategist at Lombard Odier.

“However, if the government delays stimulus delivery until December, market optimism may wane.”China’s latest economic data, released over the weekend, underscores the need for further government intervention. Deflationary pressures continued to weigh on consumer prices, and factory gate prices saw further declines in September. Meanwhile, trade data revealed that exports—one of China’s rare economic bright spots—rose at a slower pace than expected last month. In Hong Kong, however, the market reaction was less enthusiastic, with the index of Chinese shares closing 0.5% lower after a 6.6% decline last week. Analysts suggest that market volatility may persist, especially if large-scale fiscal stimulus measures are delayed until the end of the year.

At Saturday’s briefing, Finance Minister Lan highlighted that local governments would be allowed to use special bonds to purchase unsold homes, and hinted at the possibility of issuing more sovereign bonds. Additionally, Lan hinted at efforts to reduce the debt burden on local governments, signaling a potential revision to the budget in the coming weeks.
Though the absence of a large fiscal stimulus figure was noted, HSBC Holdings Plc economists led by Jing Liu described the government’s messaging as an “upside surprise,” stating that the policy shift appears to be gaining traction, with improving risk appetite benefiting both stock and property markets.Despite the initial positive response, market experts are cautious about whether this rebound will mark a sustained recovery. China’s markets have been characterized by periods of gains followed by losses over the past several years, as investors reacted to Beijing’s piecemeal approach to economic stimulus.

“The Ministry of Finance has done everything within their reach to instill hope in the market,” said Xin-Yao Ng, investment director at abrdn Asia Ltd. “However, the U.S. elections and FOMC meetings in November could push larger stimulus measures into December or beyond, keeping investors on edge and capping near-term upside.”

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