Stocks soared as trading resumed on Tuesday after a week-long national holiday in mainland China, as investors rushed to make bullish bets that Chinese government leaders would step up efforts to stimulate China’s struggling economy. did.
Before the break, the Chinese government rolled out a series of measures aimed at halting the cycle of falling property prices and declining consumer confidence, sending the stock market soaring.
The central bank and other major financial institutions announced on September 24 that they would cut interest rates, reduce minimum down payments on mortgages and encourage banks to lend more money to investors to buy stocks.
Two days later, the ruling party’s Politburo issued a rare and frank call for further measures to support the economy. Several local governments soon reduced or eliminated restrictions on real estate purchases as a means of stabilizing the city’s housing market.
The CSI300, an index of large companies traded in Shanghai and Shenzhen, surged 25% in heavy trading in the five trading sessions before the holiday. Market operators tested the system on Monday in anticipation of an influx of further activity.
The CSI 300 index jumped more than 10% at the start of trading on Tuesday, before rebounding about 5% higher.
Chinese retail investors are flooding the market, flocking to online trading platforms like Snowball and Tiger Brokers. The enthusiasm for Chinese stocks has also spread to foreign investors who feared they would miss out on the biggest rally in decades.
Mr Tay Chi Keng, an independent investor in Singapore who runs a YouTube channel about investing, said his inbox is full of requests for advice.
“People are thinking, ‘If you don’t have shares in the Chinese stock market, you’re losing money,’ and everything is happening like wildfire,” Tay said. .
Mr Tay, 26, has held shares in several Chinese companies throughout the recent downturn. He said he is forcing himself to consider any move for at least 48 hours. But he said he was almost tempted to abandon his discipline to invest in Chinese liquor company Guizhou Moutai. The company’s products trade for thousands of dollars each, and its stock price rose nearly 40% in the week before the holidays.
“This rally is just mind-boggling,” he said.
Before the recent turnaround, China’s stock market was one of the worst performing in the world. Since the beginning of 2021, the CSI 300 has lost almost half of its value and Hong Kong’s Hang Seng has fallen by more than half. Following recent gains, the CSI 300 index is up 17% this year and the Hang Seng index is up more than 35%.
China’s economy has endured three years of falling real estate prices, and the big question is whether China’s leaders will implement further stimulus.
The turning point that prompted China’s leadership to take action in late September remains a mystery. Economic indicators over the summer were weak, but not dire. The government is not scheduled to release detailed statistics for September until October 18, but a survey of Chinese companies by economic research group China Beige Book found little change over the past month.
“After the Chinese government announced it would provide the most aggressive policy support in years, many analysts believe that if the economy undergoes major upheaval,” said Leland Miller, CEO of the consulting firm. “I’m beginning to think that only policy makers will take action.” “It’s a compelling story, but it’s wrong.”
The 24-member Politburo, which runs the Communist Party, typically conducts a major quarterly review of economic policy at the end of October. So investors were surprised when the Politburo called for immediate action at a meeting in late September.
The sudden change in policy was all the more unexpected given the apparent lack of urgency when the leadership met just two months ago to review growth. At the time, a Politburo statement said the economy “remains on the upswing and in a positive trend.”
The leaders pointed to issues such as sluggish domestic demand. But as a cure, they focused on “new high-quality production forces” such as electric cars, a favorite theme of China’s supreme leader, Xi Jinping.
In mid-July, the Party Central Committee appeared unperturbed when it held a special meeting on long-term economic goals, the so-called Third Plenum (held roughly every five years).
Some foreign economists suggest China’s latest steps could be the beginning of a long-delayed effort to boost consumer spending and lay a more sustainable foundation for economic growth. There are some people. But signs persist that the country’s leaders are still committed to building more factories, despite signs of chronic overcapacity and falling prices in many industries.
“Manufacturing industry is the foundation of a nation and the foundation of a strong nation,” Xi wrote in a September 28 letter to employees of China First Heavy Industries, a state-owned conglomerate that manufactures smelting and industrial equipment. .
At the root of many of the country’s economic woes is the sharp decline in apartment prices. During the economic boom that peaked in 2021, middle-class families poured their savings into buying apartments, often borrowing money to do so. Many people bought second and third apartments as investments. Real estate now accounts for 60-80% of household assets.
Existing home prices have fallen 10% a year, and some economists have suggested the decline could accelerate to 15% next year unless further action is taken. The Communist Party’s Politburo acknowledged the issue at a meeting late last month. The law directed authorities to stabilize the housing market, strictly control construction growth, and expand financing for officially approved projects.
The danger for China is that the stock market debacle of 2015 could be repeated.
Faced with slumping real estate prices, the Chinese government engineered a rally that would see the CSI 300 index more than double in less than seven months. Millions of Chinese rushed to open brokerage accounts and borrowed heavily to bet big on stocks.
Then, when the index lost most of its gains in the summer of 2015, many people lost most or all of their savings. Before that decline, China’s official media had encouraged investors to buy.
