Chinese equities surged on Dec 9, with the bullish momentum set to possibly continue given the “limited window” for the Chinese market to react following the 24-man Politburo meeting led by President Xi Jinping, notes Yeap Jun Rong, market strategist at IG.
With another fresh round of verbal reassurances from China authorities at the meeting, policymakers have kept the market’s hopes high for an aggressive policy stimulus to arrive next year, with “more proactive” fiscal measures and a “moderately” looser monetary policy to boost domestic consumption, writes Yeap, citing Politburo meeting notes.
The shift in monetary stance is a first since 2011, which could potentially hint at further rate cuts and targeted fiscal injections, adds Yeap in a Dec 10 note.
José Torres, senior economist at Interactive Brokers, writes in a separate note that the Chinese Politburo “hasn’t used such language to describe monetary policy in roughly 16 years”. “Beijing is struggling with weak domestic demand, a glut of real estate and sagging orders for exports, with Mexico becoming the top trading partner for the US,” adds Torres in a Dec 10 note.
In addition, US president-elect Donald Trump’s protectionist policies could further weaken China’s manufacturing competitiveness, says Torres.
He adds that Chinese authorities announced on Dec 9 an antitrust lawsuit against US-based computer chip manufacturer Nvidia.
See also: China eases monetary policy stance, vows more fiscal support
The move comes shortly after the Biden administration clamped down on the types of products the company can export to China to limit the country’s ability to expand its military technology. “Some observers question if the lawsuit is retaliatory or a pre-emptive move in anticipation of new tariffs,” notes Torres.
Meanwhile, mixed economic data from China’s purchasing manager’s index (PMI) and consumer inflation has prompted authorities to react in a bid to restore some economic confidence, says IG’s Yeap.
China’s Central Economic Work Conference (CEWC), set to convene for three days starting Dec 11, could further push policymakers in the country to maintain a dovish narrative, adds Yeap, with an emphasis on stablising growth and preparing for external uncertainties.
See also: China home prices fall at slower pace as stimulus takes hold
Hence, Yeap expects “decisive action” to come only in 1Q2025, once Chinese authorities have greater clarity over the upcoming US trade restrictions. But for now, stimulus hopes could help drive a “renewed bump” in Chinese equities, says Yeap, similar to what was seen in April and September this year.
What the charts say
Overnight, the Nasdaq Golden Dragon China Index closed more than 8.5% up on Dec 9, its highest level since October this year. The index is a modified market cap-weighted index comprising companies whose common stock is traded in the US but with the majority of their business being conducted in China.
On the other hand, the FTSE China A50 Index has seemingly formed a near-term double bottom, with the index re-testing its potential neckline at the 14,345 level, notes Yeap.
“Any break above this could offer validation for buyers, with price projection of the pattern potentially leaving the October high, with the 15,834 level on watch next,” he adds. The index’s components are chosen from Shanghai Stock Exchange and Shenzhen Stock Exchange.
Failure to cross the 14,345 level could see the index retrace towards the 13,700 level, where a near-term horizontal support may stand.
Chart: IG
