Navigating China’s Stimulus Plan

Written by Shan Gao

The Chinese equity market experienced a substantial surge from 24-30 September. The CSI 300 TR USD surged by 24.1%, and the Hang Seng TR USD rallied by 32.0%, outperforming other major global equity indices. This marked the largest weekly gain since 2008, when a major stimulus package was introduced during the Global Financial Crisis. This remarkable rebound followed a series of policy easing measures introduced just before the national holiday, known as “Golden Week”. The package includes plans to lower borrowing costs, injecting additional capital into the economy, and more efforts to stabilise the property sector. These measures are part of a broader stimulus package aimed at revitalising China’s struggling economy and boosting market confidence.

Today, the Chinese mainland market resumed trading after the week-long holiday. It sustained its rally, surging to two-year highs and achieving a record turnover exceeding 3 trillion yuan in a single day of trading, bolstering broader Asian equity markets. Additionally, this rally has positively impacted stock markets globally, particularly benefiting regions and sectors more reliant on Chinese consumer demand.

Source: Bloomberg

This highlights the challenge of timing the market to capture such unexpected gains. Over time, staying invested in a well-diversified portfolio is generally a better strategy than attempting to time the market. At MASECO, our September rebalancing has positioned us well to capitalise on growth opportunity in China, recognised as the second-largest economy in the world, leveraging our strategic overweight exposure to emerging market.

Looking closely at the updated fiscal policy, the Politburo has stated its commitment to providing necessary fiscal spending to achieve its growth target of 5% for 2024. While specific spending details have not yet been disclosed, reports suggest intentions to issue around RMB 2 trillion (equivalent to USD 284.4 billion) in special sovereign bonds, with RMB 1 trillion designated for stimulating domestic consumption.

In terms of the real estate sector, the Chinese government has revised its previously ambiguous language on housing, urging stabilisation in the real estate market and preventing further declines in property prices. On the supply side, it pledged strict controls on new construction, increased lending for approved projects, and support for the sale of undeveloped land. On the demand side, it has lowered existing mortgage rates as well as the national minimum down payment ratio. Subsequently, key tier-1 cities in China have now introduced easing measures to support the property sector.

We observed a surge in local enthusiasm in Hong Kong, as evidenced by a significant increase in daily trading volumes and a rise in new account registrations among local brokers. While the stimulus package may provide a temporary uplift in the short term, the impact of these policy adjustments will require time to materialise. Although a rapid economic recovery appears unlikely in the immediate future, the Chinese government’s dedication to fostering growth indicates that additional supportive measures may be on the horizon.

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