Chinese stocks overcame a bout of early volatility to post their biggest gain in a week on Monday, suggesting that investors are hopeful the government will deliver on its promise of more fiscal support.
At a much-anticipated briefing on Saturday, Finance Minister Lan Fo’an vowed new steps to support the property sector and hinted at greater government borrowing. While authorities refrained from giving a headline dollar figure that investors had sought, Goldman Sachs Group Inc. saw the latest measures as a sign of increased policy focus on growth. It upgraded its forecasts for China’s economic expansion in 2024 and 2025.
The CSI 300 Index rose 1.9% at the close, taking its advance from a September low to 25%. The move helped resuscitate China’s historic stock rally after it stumbled last week. A Shanghai Stock Exchange gauge of property stocks surged 4.7%.
Revved up fiscal spending is still seen as holding the key to sustaining the rebound ignited by the central bank’s stimulus blitz in late September. Traders are betting that the Standing Committee of the National People’s Congress, China’s top legislature, will approve extra budget funding at its meeting later this month.
“The Ministry of Finance’s forward guidance worked to a degree by hinting at a substantial new package on the horizon at the central government level,” says Homin Lee, senior macro strategist at Lombard Odier. “Onshore retail investors will probably maintain their hopeful mode in the very near-term, but that might not be sustained if the government delays its stimulus delivery further to December.”
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China’s latest economic data is underscoring the need for authorities to do more. Figures released on Sunday showed deflationary problems became more entrenched in September, with consumer prices still weak and factory gate prices continuing to fall. Trade data released after Monday’s market close showed exports — which have been a rare bright spot — rose much less than expected last month.
In Hong Kong, an index of Chinese shares closed 0.5% lower, adding to a 6.6% slide last week. It surged more than 30% in the previous three weeks.
‘Upside Capped’
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At Saturday’s briefing, Lan and his deputies said local governments will be allowed to use special bonds to buy unsold homes. Lan hinted at room for issuing more sovereign bonds and vowed to relieve the debt burden of local governments, signaling a possible rare revision to the budget that could come in the next few weeks.
Bonds issued by China’s local government financing vehicles rallied. While the minister didn’t provide a specific amount, he said the size of the one-off effort to raise the local government limit to swap hidden debt will be the “largest in recent years.”
Officials from various Chinese departments vowed to step up policy support for businesses in a separate briefing on Monday.
“Despite no large fiscal stimulus number, the MOF press conference was still an upside surprise to us,” HSBC Holdings Plc economists including Jing Liu wrote in a note. “The policy pivot looks very much here to stay, with the improving risk appetite creating a wealth effect in both the stock and property markets.”
Market volatility had risen in the run up to the MOF briefing, with the CSI 300 Index sliding 3.3% last week. Investors and analysts surveyed by Bloomberg had expected China to deploy as much as RMB 2 trillion (US$283 billion and $369.9 billion) in fresh fiscal stimulus, including potential subsidies, consumption vouchers and financial support for families with children.
As the initial stock euphoria cools, concern may grow that the latest rebound may be yet another false dawn. The market has been caught in a start-stop cycle of gains and losses over the past few years as Beijing’s piecemeal approach to stimulus produced only brief rebounds.
“The MOF did everything within their purview to give market hope to look forward to,” says Xin-Yao Ng, an investment director at abrdn Asia Ltd. “I suspect November’s US election and the FOMC could delay large stimulus to December or later, and investors might stay away before that and third-quarter results, so upside could be a bit capped for now.”
