Shoppers on Nanjing East Road in Shanghai, China, Wednesday, October 2, 2024.
Shen Qilai | Bloomberg | Getty Images
Chinese investors are seeking more policy direction from China’s top economic planning agency as mainland markets return from a week-long holiday on Tuesday.
According to reports, senior officials of the National Development and Reform Commission, including Director Zheng Shanjie, will hold a press conference at 10 a.m. local time on Tuesday to brief reporters on the implementation of the stimulus policy. Notice from the State Council on Sunday.
Economists and traders are closely watching more policy measures as Beijing unleashes a sense of urgency to get its economy back on track to meet its annual growth target of “around 5%.”
Ahead of the week-long holiday, authorities launched a series of stimulus policies, including cutting interest rates, lowering bank cash reserve requirements, easing property purchase rules and providing liquidity support for the stock market.
China’s main stock index soared more than 25% as investors cheered a raft of stimulus measures. Last week, China’s CSI 300 blue-chip stock index continued its ninth consecutive rise, soaring more than 8% on Monday before the one-week holiday. However, Hong Kong stocks reopened last Wednesday and exceeded 23,000 points for the first time since 2022 on Monday.
Futures contracts linked to the MSCI China A50 Connect Index, which tracks 50 large-cap stocks in the A-share market, have soared nearly 15% since September 30, to 2,536.6 points as of 2:30 pm on Monday. SGX FTSE China A50 Index futures also surged 12.7% to 15,672 points during the same holiday.
speculative rally
Erica Tay, director of macro research at Maybank Investment Bank Group, said that since Beijing pledged to increase fiscal spending on September 26, the market has been waiting for specific details and “it is very important for the National Development and Reform Commission to relax policies”.
The Treasury Department did not attend Tuesday’s news conference and has yet to announce major policies to support growth. This is despite reports of such plans. Lei Xiaoshan, founder and managing director of China Market Research Group, said the government now needs to increase fiscal stimulus measures to maintain the momentum of the rally. Rein said the key thing to watch at Tuesday’s meeting is whether the new measures target the real economy.
On August 23, 2024, people walked along Huguosi Street, Xicheng District, Beijing, which is a food street in Beijing.
Berry Boy | AFP | Getty Images
In the short term, the optimism is likely to continue “albeit at a less drastic pace,” said Lynn Song, chief economist for Greater China at ING, who suggested policymakers may roll out more supportive measures. policy to “capitalize on the emerging positive momentum” of the lengthy break.
But Song said the momentum for the rally would depend on the actual implementation of previously announced policies and “how quickly and aggressively” policymakers come up with follow-up support measures to boost consumer confidence and economic activity.
“If any of these fall short, optimism could be shaken,” he said.
Song said A-shares have been moving toward the high end of a “relatively reasonable range,” with trading prices higher than historical valuation levels. A-shares refer to stocks listed on the Shanghai or Shenzhen stock exchanges.
Natixis senior economist Gary Ng said the market’s room for further gains is “narrowing” and “it now depends on actual improvement in the economy to justify valuations.”
He expects the National Development and Reform Commission to announce the specific amount of additional fiscal policy on Tuesday and focus on real estate and consumption.
Expectations are crazy
However, some like Hong Hao, chief economist at GROW, believe Tuesday’s press conference may be “underwhelming,” causing the market to open higher but end up lower.
He noted that officials could simply repeat previous announcements and provide some details on plans for unused bond issuance lines, which he noted exceeded 3 trillion yuan ($427.4 billion).
Eugene Hsiao, head of China equity strategy at Macquarie Capital, said the key now is “less on the amount of stimulus and more on the actual mechanisms to help boost wages, consumption and overall consumer confidence” . Although China often adopts fiscal stimulus measures, he warned that the effect is often limited because the market reaction is muted.
According to FactSet, economists at Morgan Stanley expect a 2 trillion yuan fiscal plan that can be used to support local government finances, recapitalize major banks and boost consumption. The smaller-than-expected package could also signal Beijing’s commitment to ending deflation and supporting growth, the bank said.
FactSet data shows that UBS plans to launch a more moderate fiscal plan of 1.5 trillion yuan to 2 trillion yuan this year, and further implement a follow-up plan of 2 trillion yuan to 3 trillion yuan in 2025.
If Beijing continues to push for expected fiscal support, the market’s upside could be substantial. Citibank raised its forecast for Hong Kong’s Hang Seng Index and said the index could reach 26,000 points by June 2025. .
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