By Sadiq Al Gobahi 
China’s recent economic stimulus measures have led to a significant rally in the stock market, with the CSI 300 blue-chip index surging over 25% in just nine days. This impressive gain is attributed to a series of economic support announcements from Beijing, which have invigorated investor confidence and participation.
The rally began with a remarkable 8% jump in a single day, marking the best performance in 16 years. This surge occurred just before the markets closed for the Golden Week holiday, a week-long break commemorating the 75th anniversary of the People’s Republic of China. Analysts predict that the stock market will continue to rise once trading resumes on October 8.
Eugene Hsiao, who heads China Equity Strategy at Macquarie Capital, thinks that the recent drop in Hong Kong stocks is simply a case of short-term profit-taking after the significant increase. He anticipates that the rally will continue, fueled by stimulus measures from Beijing and greater involvement from retail investors.
However, there are concerns about the sustainability of this rally. Shehzad Qazi, Chief Operating Officer at China Beige Book International, warns of a potential “ugly reversal in sentiment” if the stimulus measures fail to deliver substantial economic growth. Investors are hopeful for significant economic improvements, but if the stimulus only provides a modest boost, enthusiasm may wane1.
Shaun Rein, founder of China Market Research, anticipates that Chinese equities have another 1-3 weeks of upward momentum. He notes that it is common for prices to drop as investors take profits, leading to potential volatility in the market1.
The recent stimulus measures are among the most aggressive since the pandemic, including substantial rate cuts and fiscal support. The People’s Bank of China has introduced new tools to support the capital market, such as a swap program to facilitate funding for stocks. These measures have sparked a significant turnaround in Chinese equities, which had been languishing near multi-year lows1.
For more details, you can read the original article on CNBC’s website here.
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