How Long Can China’s Bull Market Last?
China is grappling with a depressed job market, a struggling property sector, weak consumer spending, geopolitical tensions, and debt.
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Measures from China’s central bank have succeeded in stimulating Middle Kingdom markets, but will they be enough to reignite the world’s second-largest economy? Confucius said the wise never doubt — but maybe they should.
Turning the Corner?
China is grappling with a depressed job market, a struggling property sector, weak consumer spending, geopolitical tensions, and significant local government debt. Since Beijing ended its “zero COVID” policy in December 2022, there has been a growing demand for stimulus, which is finally being addressed.
In late September, the People’s Bank of China announced plans to:
- Cut the reserve requirement ratio by 0.5%, injecting about 1 trillion yuan ($142.5 billion) into Chinese markets.
- Reduce the minimum down payment ratio for second-home mortgages from 25% to 15%. Major cities like Beijing, Shanghai, and Shenzhen have already implemented lower down payment ratios for first and second homes, with Guangzhou removing all home purchasing restrictions.
- Launch a special lending facility to provide listed companies and their major shareholders with capital for stock buybacks and larger equity positions.
As a result, China has become a bull market. Last week, the Hang Seng China Enterprises Index surged 36% from a September low. Meanwhile, the CSI 300 and SSE Composite jumped roughly 25% and 22%, respectively, from a month ago. Overall, Chinese stocks saw their biggest single-day gains in 16 years last Monday.
Global investors have suggested it might be time to step back into China. “What we are telling our clients this week is that if you have nothing (in China) you may want to add some positions,” Luca Paolini, chief strategist at Pictet Asset Management, told Reuters.
The Long Game: However, this bull run might be short-lived, as China continues to grapple with economic uncertainty that may require aggressive fiscal change. That could be on the way, though: Reuters reported China’s Ministry of Finance plans to issue 2 trillion yuan of special sovereign debt to stimulate consumption and help local governments tackle debt problems. In an interview with Chinese publication The Paper, one economist said China’s government could double down on stimulus by raising investments in public projects. “As these projects get underway, they will create jobs, increase income for citizens, and unlock consumption potential,” said Jia Kang of the China Academy of New Supply-Side Economics.