(Bloomberg) -- Chinese stocks posted their first annual advance since the pandemic, and more gains may be in store if Beijing offers further growth support.
The onshore benchmark CSI 300 Index has climbed almost 15% since end-2023 to halt an unprecedented three-year losing streak. A gauge of Chinese equities listed in Hong Kong jumped 26% to record its biggest yearly increase since 2009. In comparison, the MSCI Asia Pacific Index has risen around 7% in 2024.
The positive milestones signal that things are finally looking up for China’s shares after years of underperformance transformed some of their biggest fans into skeptics. Optimism is growing following a long-running cycle of starts and stops as Beijing unleashed one of its most-daring policy campaigns in decades to resuscitate the economy.
“There is still a lot of room for China’s equity valuations to continue to improve in 2025, as the policies prescribed since the September pivot are both clear-sighted and adequate,” said Zhao Zhonghua, chief investment manager at Shandong Camel Asset Management Co. “This will drive flows via state and household funds next year, even if implementation wise, there may be some discord or lag with market expectations.”
Investors allocated about $5.6 billion to Chinese equity funds in the week through Dec. 11, the biggest inflow in nine weeks, Bank of America Corp. strategists said, citing EPFR Global data. Domestic investors created 6.8 million accounts for trading onshore shares in October, the largest monthly reading since June 2015, according to a Bloomberg tally of data released by the Shanghai Stock Exchange. The momentum continued into November with about half those numbers.
The turnaround is a long time coming after Beijing’s previous piecemeal approach to boosting growth yielded only brief bouts of recovery in stocks. The CSI 300 Index has jumped more than 20% since late September when authorities rolled out a broad package of measures which included interest-rate cuts, bigger incentives to buy homes and monetary tools to support share purchases.
The gains crystallized as the Politburo vowed in December to embrace a “moderately loose” stance on monetary policies — its first such shift in 14 years — while pledging to ramp up fiscal measures for next year.
Signs of Caution
Nonetheless, there are still some signs of caution. The onshore gauge shed 1.6% on the last trading day, the most on a closing basis in more than two weeks.
“It’s mainly technical reasons, and judging from today’s market trend, it’s very likely the decline will extend after the New Year holiday,” said Zhou Nan, founder and investment director at Shenzhen Long Hui Fund Management Co.
Chinese investors’ appetite for stock-focused mutual funds waned in December as bonds once again gained attraction. While the total amount raised by equity products still exceeded that of fixed income, debt funds grew rapidly, notching their largest monthly figure for the year so far.
To sustain the momentum in stocks, China still needs to address some of the deep-rooted issues that are foremost on investors’ minds, including the property downturn, weak consumer confidence and falling prices. All eyes are now on the annual National People’s Congress session in March, where Beijing will have another opportunity to convince investors with more detailed policies to shore up growth.
“I trust the government is serious this time about protecting the baseline of the economy and boosting domestic demand, in the face of US tariffs that could hurt exports,” said Xin-Yao Ng, investment director at abrdn. “The first quarter will unfortunately be volatile for Chinese stocks, given the Trump inauguration.”
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