TLDR:
- Chinese stocks have rallied significantly since late September due to stimulus measures
- Many global fund managers remain skeptical of the rally’s sustainability
- Concerns exist about overvaluation and need for more concrete policy actions
- Some predict further gains, while others warn of potential challenges ahead
- Markets are closely watching for additional fiscal stimulus details from China
China’s stock market has experienced a remarkable surge in recent weeks, with the Hang Seng China Enterprises Index jumping over 35% in the past month.
This rally, triggered by a series of economic support measures announced by Beijing, has made Chinese stocks the best performers among global equity gauges tracked by Bloomberg.
However, the rapid ascent has left many global fund managers and strategists cautious, with some viewing the rebound skeptically and others awaiting more concrete policy actions from the Chinese government.
The rally was ignited by a barrage of stimulus measures unveiled by Chinese authorities, including interest rate cuts, reduced cash reserve requirements for banks, looser property purchase rules, and liquidity support for stock markets.
These actions were aimed at reinvigorating investor confidence and putting the world’s second-largest economy back on track to achieve its annual growth target of around 5%.
Despite the positive market response, several prominent financial institutions, including Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth, and Nomura Holdings Inc., have expressed reservations about the sustainability of the current rally. Their concerns stem from the need for Beijing to back up its stimulus pledges with real money and worries that many stocks may already be reaching overvalued levels.
Raymond Ma, Invesco’s chief investment officer for Hong Kong and Mainland China, noted that while sentiment could overshoot in the short term, investors will eventually return to fundamentals.
He pointed out that some stocks have become significantly overvalued due to the recent rally, lacking a clear value proposition based on their likely earnings performance.
JPMorgan Asset Management echoed these sentiments, with Tai Hui, Asia Pacific chief market strategist, emphasizing the need for additional policy steps to boost economic activity and confidence. Hui also highlighted global uncertainties, such as the upcoming U.S. elections and their potential impact on U.S.-China relations, as factors that could dampen the nascent stock rally.
HSBC Global Private Banking remains concerned that the steps taken by China may not be sufficient to reverse the nation’s slowing long-term growth outlook. Cheuk Wan Fan, chief investment officer for Asia at the private bank, stated that more significant fiscal easing is still needed to sustain the recovery momentum and achieve the 5% GDP growth target for 2024.
However, not all market participants share this skepticism. Goldman Sachs Group Inc. has upgraded its outlook on Chinese stocks to overweight, predicting that indexes tracking the nation’s equities may rise another 15% to 20% if authorities deliver on policy measures. The investment bank believes that recent stimulus announcements have led the market to perceive policymakers as more concerned about taking sufficient action to mitigate growth risks.
As mainland Chinese markets reopen after a week-long holiday, investors are closely watching for more policy direction from the National Development and Reform Commission (NDRC). A panel of senior officials, including NDRC chairman Zheng Shanjie, is scheduled to brief reporters on the implementation of stimulus policies on Tuesday.
Economists and traders are particularly interested in potential additional fiscal measures, with some speculating about a possible 2-3 trillion yuan fiscal package.
The key focus will be on whether new measures target the real economy and how quickly they can be implemented to boost consumer confidence and economic activity.
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