Source-caixinglobal.com
Stock Market Rallies Amid Government Stimulus
China’s stock markets surged dramatically after the government initiated a series of stimulus measures aimed at stabilizing its weakening economy. As trading resumed following a weeklong national holiday, share prices soared, with the CSI 300 index of large companies climbing more than 10% initially before settling at a 5% gain. This rapid rise came after the Chinese government unveiled policies to address falling real estate prices and weakening consumer confidence. On September 24, China’s central bank, along with top financial agencies, lowered interest rates and reduced the minimum down payments for mortgages. Banks were also encouraged to extend loans for stock purchases, leading to a rally in the markets.
Investors were further motivated when the ruling Politburo, in an unusual move, called for more aggressive economic support. Following this announcement, several municipal governments reduced restrictions on real estate purchases, hoping to stabilize housing markets. This combination of actions caused a 25% surge in the CSI 300 index in the five trading sessions before the holiday. The growing enthusiasm extended beyond China’s borders, as global investors joined in to avoid missing out on what many considered one of the largest stock rallies in recent history.
Investor Response and Lingering Economic Concerns
The rally has sparked excitement among both retail and international investors. In China, platforms like Snowball and Tiger Brokers saw a surge in activity, as individuals rushed to capitalize on the stock market boom. Independent investor Tay Chi Keng from Singapore, who manages a YouTube channel focused on investing, shared how his inbox was flooded with requests for advice. Tay, known for his cautious investment strategies, admitted feeling tempted to break his usual discipline and invest in Chinese stocks, particularly in companies like Kweichow Moutai, whose shares increased by 40% before the holiday.
Despite the rally, concerns about China’s economic stability persist. Over the last three years, China has faced a steep decline in real estate prices, a crucial sector that accounts for a significant portion of household assets. Prices of existing homes have been falling by 10% annually, and economists predict this decline could reach 15% next year unless more comprehensive measures are taken. The Politburo, acknowledging these challenges, has directed officials to focus on stabilizing the housing market while limiting new construction and expanding loans for approved projects. However, experts believe that additional stimulus might be required to sustain the economic recovery.
Uncertain Future and Risk of Repeating Past Mistakes
While China’s stock market rally has reignited investor optimism, the country faces the risk of repeating past mistakes. In 2015, a similar government-engineered stock rally led to massive losses when the market eventually crashed, wiping out the savings of millions of investors. The CSI 300 index had doubled in less than seven months back then, only to shed most of its gains by mid-2015. This time around, investors are more cautious, though the recent surge has raised hopes for a prolonged recovery.
China’s leadership remains focused on bolstering the manufacturing sector, with President Xi Jinping emphasizing its role as the foundation of the nation. However, some overseas economists believe that the government should prioritize increasing consumer spending to build a more sustainable economic base. The upcoming release of detailed economic data in mid-October will offer further insights into the effectiveness of these recent stimulus measures and the future trajectory of the Chinese economy.