Investors in the 'euphoria' of the Chinese stock market

The CSI 300 Composite Index jumped 15.7% in its best week since November 2008, helped by a slew of monetary stimulus and pledges to boost fiscal spending. Goldman Sachs Group Inc. said it supports the view that China’s stock rally could be more sustainable. Morgan Stanley expects the market to rise another 10%.

How long this confidence lasts, however, depends largely on the scale and speed of policy action in China. Any signs of a slowdown in spending over the upcoming Golden Week holiday could raise concerns about weak consumption in China, which, along with a persistent property crisis, has pushed the country to the brink of a deflationary spiral.

Measures announced this week include interest rate cuts, cash releases for banks, billions of dollars in liquidity support for the stock market and a pledge to end falling property prices.

Eight of 12 investors surveyed by Bloomberg this week said this would be a turning point for a longer-term rally, while four saw it as a short-term recovery.

This is a remarkable turnaround from earlier this month, when Chinese stocks fell to their lowest in more than five years amid a deepening property slump, weak consumption and geopolitical headwinds. Economists now expect China to hit its growth target of around 5% this year. They also say there is room for the Chinese government to roll out a larger fiscal stimulus package to go along with interest rate cuts.

Those betting on more fiscal stimulus from China will buy even if there are concerns about economic fundamentals, said Homin Lee, senior macro strategist at private bank Lombard Odier in Singapore.

However, for those who have experienced disappointment many times before, there are plenty of reasons to be cautious.

The current rally is similar to the one that followed China’s abandonment of its “Zero COVID” policy in late 2022, when the CSI 300 index surged before crashing, rising more than 15% from February to May.

Mark Mobius, president of the Mobius Emerging Opportunities Fund, said the main risk in China is the government continuing policies that prevent large entrepreneurs from investing and developing companies. It is important to encourage innovation and private investment, he said.

Overall, many say this is not the time to question whether it is a structural or technical recovery. For those who have suffered years of losses in Chinese stocks, this is simply the time to chase profits.

Source: https://doanhnghiepvn.vn/quoc-te/gioi-dau-tu-trong-con-thang-hoa-voi-thi-truong-chung-khoan-trung-quoc/20240930121941870