(Bloomberg) -- The long-awaited recovery in Chinese equities may finally be here.
The CSI 300 Index is headed for its biggest weekly gain in almost a decade after China’s top leaders delivered a forceful pledge to increase fiscal support and stabilize the property sector to revive growth. The gauge’s 4.2% jump on Thursday was led by consumer stocks and the rally put the benchmark on course to halt an unprecedented three-year losing streak. Meanwhile, the Golden Dragon index of US-listed Chinese stocks also rallied 11%.
The Politburo’s vow comes on the heels of one of China’s most daring policy campaigns in decades and taken together, they may finally help haul Asia’s biggest economy out of a slump. There’s a lot at stake: China is being increasingly left out of emerging-market equity fund launches and top Wall Street banks such as Morgan Stanley and Goldman Sachs Group Inc. have grown ever more skeptical about the turnaround story.
“It shows Beijing cares,” said Siguo Chen, portfolio manager at RBC Asset Management, referring to the latest policy announcement. “Whether these measures will be effective, that’s another topic, but admitting there’s an issue with the economy that needs to be addressed is the first step.”
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Officials also called on the forceful implementation of cuts to interest rates and a reserve requirement ratio for banks, easing measures announced by the People’s Bank of China this week. They would strive to boost the capital market and “greatly guide” mid-to-long term funds into the stock market, according to the readout for the meeting. The language showed renewed urgency from the policymakers.
Consumer shares led gains on the onshore gauge following the government’s announcement of one-off cash handouts to people in extreme poverty. A sub-gauge of financial stocks was among the best performers after it was reported that authorities are considering injecting up to 1 trillion yuan ($142 billion) of capital into its biggest state banks.
The optimism spread beyond mainland shares, with the Hang Seng China Enterprises Index rallying 4.8% to reach the highest level since February 2023.
Turnover in Shanghai and Shenzhen topped 1 trillion yuan for a second day, the first time since May, according to data compiled by Bloomberg. The heightened activity is commonly construed as a bullish sign.
Moves were more muted in the currency and bond markets, with the yuan holding onto a modest gain and yields edging higher.
While most market watchers agreed that the simultaneous changes to multiple policy levers were encouraging, some cautioned that the rally may only be a tactical rebound. Doubt persists that the measures can fix China’s long-standing problems including weak consumption, falling prices and an entrenched property crisis.
“Unless there is meaningful structural change, my sense is we’re going to have a situation in markets akin to Japan where we would have positive announcements, sharp rally, then a lack of follow through, then a period of quiet, then positive news, lack of follow through,” said John Woods, chief investment officer for Asia at Lombard Odier.
But for now, optimism is running high that this may be Beijing’s best shot yet to turn things around.
“Hong Kong and Chinese onshore stocks shot up immediately after the Politburo readout, showing that investors don’t want to miss the chance to chase the China rally with the stocks trading at multi-year low levels and you have the biggest stimulus package announced in years,” said Dickie Wong, executive director of research at Kingston Securities Ltd.
--With assistance from Winnie Hsu, April Ma, Sangmi Cha, Cormac Mullen, Subrat Patnaik and Brandon Harden.
(Updates with Golden Dragon index move in paragraph two.)
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