Shoppers on Nanjing East Road in Shanghai, China, Wednesday, Oct. 2, 2024.
Qilai Shen Bloomberg | Getty Images
Chinese investors are looking for more policy guidance from China’s top economic planning body on Tuesday, when international markets return from a week-long holiday.
A delegation of senior officials of the Development and Reform Commission, including chairman Zheng Shanjie, will brief reporters on the implementation of the stimulus policies at a press conference on Tuesday at 10 a.m. local time, according to a State Council notice on Sunday.
Economists and traders are keenly eyeing further policy measures as Beijing has expressed a sense of urgency to get its economy back on track to meet its annual growth target of “around 5%”.
Ahead of the week-long holiday, authorities unveiled a series of stimulus policies, including interest rate cuts, lower deposit requirements, looser asset purchase rules and financial support for stock markets.
China’s major indexes rose more than 25% as investors cheered a series of stimulus measures. Last week, China’s CSI 300 blue-chip index extended a nine-day winning streak, rising more than 8% on Monday, before the market closed for a weeklong holiday. Hong Kong stocks, however, reopened on Wednesday last week and traded above 23,000 on a Monday for the first time since 2022.
Futures contracts linked to the MSCI China A50 Connect Index, which tracks 50 mega-cap stocks on the A-share market, rose nearly 15% since Sept. 30, to 2,536.6 as of 2:30 p.m. on Monday. SGX FTSE China A50 Index futures also rose 12.7% to 15,672 over the same holiday period.
Speculation meeting
Since Beijing vowed to increase spending on September 26, the market has been waiting for some details, said Erica Tay, director of senior research at Maybank Investment Banking Group, “it will be important for the NDRC to put some flesh on the bones.”
The Ministry of Finance does not participate in the Tuesday press and has not announced any major policies to support growth, despite reports of these plans. Now the government needs to add financial stimulus to maintain the rally’s momentum, said Shaun Rein, founder and managing director of China Market Research Group. Rein said that the important thing that should be considered in Tuesday’s meeting is that the new ways are towards the real economy.
People walk along Huguosi Street, Xicheng District, a dedicated food street in Beijing on August 23, 2024.
Adek Berry | AFP | Getty Images
In the near-term, optimism may continue “albeit at a much slower pace,” said Lynn Song, chief economist for Greater China at ING, suggesting that policymakers could push ahead with supportive policies to “harness the strength of the outgoing momentum. with a long break.”
But the momentum of the rally depends on the actual implementation of previously announced policies and “how quickly and how strongly” policymakers come up with follow-up support measures to boost consumer confidence and economic activity, Song said.
“If any of these things fail, hope can diminish,” he said.
Shares have been nearing the upper end of a “relatively reasonable band” and are trading above historical valuation levels, Song said. Stocks refer to stocks listed on exchanges in Shanghai or Shenzhen.
The chance that the market will continue to rally is “diminishing,” said Gary Ng, senior economist at Natixis, “and now depends on real economic development to justify the valuation.”
He expects the NDRC to announce the exact amount of additional monetary policy on Tuesday, focusing on housing sales and consumption.
Expectations run wild
However, others such as Hong Hao, chief economist at GROW, believe that Tuesday’s presser may have been “suppressed,” leading the market to open higher but ultimately lower.
He pointed out that officials could repeat previous announcements and provide details on plans for the unused portion of the bond issuance, which he noted is more than 3 trillion yuan ($427.4 billion).
The key now will be “a reduction in the amount of stimulus, but a real way to help boost wages, consumption and overall consumer confidence,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital. While China often injects fiscal stimulus, he cautioned that the effect is often limited as evidenced by muted market reactions.
Economists at Morgan Stanley expect a 2-trillion-yuan fiscal package, which could be used to finance local governments, rehabilitate central banks and boost consumption, according to FactSet. The bank said the smaller-than-expected package could also reflect Beijing’s commitment to curbing inflation and supporting growth.
UBS has penciled in a low-level financing package of between 1.5 trillion to 2 trillion yuan this year, with a further tracking of 2 trillion to 3 trillion yuan by 2025, according to FactSet.
Market upside could be significant if Beijing pushes ahead with expected fiscal support. Citibank raised its forecast for Hong Kong’s Hang Seng Index, saying it could now reach 26,000 by June 2025. It expects Beijing’s economic stimulus measures to exceed market expectations with a 3-trillion-yuan consumption support package coming soon.