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Chinese stocks have had their best week since 2008 after the Chinese government rolled out a stimulus package that included a $114 billion war chest to boost the stock market.
The CSI300 index of companies listed in Shanghai and Shenzhen rose about 15% for the week, its best performance since November 2008, when China announced a similar economic stimulus package in response to the global financial crisis.
The rise comes as Chinese leaders rush to support the country’s capital markets, stabilize the real estate sector crisis and boost domestic consumption to meet this year’s 5% economic growth target.
The People’s Bank of China on Tuesday announced an 800 billion yuan ($114 billion) loan pool for the country’s capital markets. This loan pool consists of funds that companies lend to buy back their own shares and funds that are loaned to non-bank financial institutions such as insurance companies to buy local stocks. stock.
On Friday, the CSI300 index rose 3.8% and Hong Kong’s Hang Seng Index rose 2.8%, up more than 12% since the start of the week and the highest weekly gain since August 2007. It has been since then. global financial crisis.
“We are at a pivotal moment for the Chinese economy and its stock market,” said Nicholas Yeo, head of China equities at Abdon, adding that the Federal Reserve’s recent interest rate cuts are also a big tailwind. I said so in my notes.
“Global easing conditions are poised to boost consumption, which will benefit China, the world’s largest exporter,” he said.
Expectations of further stimulus from China also boosted European stocks. The region-wide Stoxx 600 index closed at a record high on Thursday, buoyed by gains in luxury goods groups benefiting from increased consumer spending in China.
China’s rebound followed Wall Street’s gains after stocks rose ahead of Friday’s inflation report and the S&P 500 closed at a record high for the third time this week on Thursday.
In August, Chinese authorities restricted daily northbound data through the Hong Kong Stock Connect program, which shows foreign investors’ inflows into mainland stocks.
However, Citi said the past three days had been the “busiest period for Citi’s equity sales and trading teams in Asia, with record customer inflows” into Hong Kong and mainland China equities.
The Shanghai Stock Exchange issued a notice on Friday warning investors that trading speeds were “unusually” slow following a morning trading frenzy, two people familiar with the situation said.
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“We can’t dismiss this as the same old policy,” said Winnie Wu, equity strategist at Bank of America. “This is the first time the government has encouraged leveraged investing in the stock market. There should still be significant room for liquidity-driven upside.”
David Chao, global market strategist at Invesco, said the rally in Chinese stocks could persist. “Momentum is important in the Chinese market, and there is a gap between the current bull market and the bull market in 2014-15, when the Shanghai index rose about 150% from June 2014 to June 2015, but then fell. I think there are some similarities.”
Chao added that with the dollar continuing to weaken on the back of Federal Reserve interest rate cuts, “there could be a rotation away from expensive and crowded global tech trades to cheaper (emerging market) assets. “There will be,” he predicted.
