Is this the real turning point for Chinese equities?

2024 年 9 月 26 日
-FCHFX, 人民币

September 26, 2024 at 06:09AM
The index is up 7% on the week currently and looks poised to hold the rallying mood before the Chinese holiday next week. Beijing has made a plethora of announcements and promises this week to try and bolster economic activity. And that is lifting the overall mood, even if it is via the monetary policy side of things mostly.

But when you look at the chart, we’ve had false starts before when it comes believing in the post-Covid Chinese economic revival. And the market vote each and every time since 2022 has been that “it is not enough”. So, is this time different?

There’s certainly a different ring to things at least, in what they’re trying to attempt this week. RRR cuts, cuts to the mortgage rate for existing housing, policy support for the property market, and planned tools to support the stock market. Adding to that, there’s also reports on capital injection for banks and also Shanghai giving up $71 million worth of vouchers to boost consumption activity.

Putting everything together, it’s arguably the biggest stimulus package – at least by the PBOC – since the Covid pandemic. And Chinese policymakers are trying something new for once, in wrapping all of this up in a big package announcement. They’ve tried doing it individually before but the impact tends to be drowned out and more limited. So, the question now is will investors feel different about this approach?

I reckon at the end of the day, investors will want to see more fiscal support to back this up.

When you look at the trend in Chinese equities above, one can deduce that confidence is shot over the last year or so. It will take more to lift the market spirits but this is definitely a good start.

7% gains in the CSI 300 index this week is an early vote of faith by market players. But over time, I’m sure we will be expecting more measures from Beijing.

I mean, valuations are cheap. And there’s a very good opportunity when looking at the longer-term outlook and the levels we’re seeing with Chinese equities. But is this where everything starts to turn around and the bull awakens? I’m still not entirely convinced. But at least the PBOC is getting people to try and start believing again.

And that is perhaps an important first step in trying to “fix” market sentiment that has been put down ever since the Covid pandemic struck.

This article was written by Justin Low at www.forexlive.com.

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