However, China’s officials let down investors this week by not following through on recent monetary policy stimulus measures. Tomorrow is their second chance.
On Saturday local time, China’s Ministry of Finance will hold a meeting that could give the economy up to 2 trillion yuan, or about $282 billion, in fiscal stimulus. The economy is still struggling because of problems with real estate.
According to a note from Deutsche Bank strategist Jim Reid on Friday, the market is currently expecting a CNY1.5-2 trillion package, which does not include CNY1 trillion in recapitalization for big banks. It will be important to see if the actual announcement meets this level after a week of nervousness following a week or so of euphoria.
Euphoria for sure. At the end of September, Chinese stocks went through the roof after the People’s Bank of China announced rate cuts and other steps to get the economy out of its slump. It stopped this week, though, when investors came back from the holidays hoping for more help on the budget front.
China’s state economic planning body, the National Development and Reform Commission, did not talk about any more stimulus steps in its briefing on Tuesday. This caused stocks to drop sharply.
This week, the China Composite Index (CSI 300) fell more than 3%, the Shanghai Composite Index (SHCOMP) fell 3.6%, and the Hong Kong Hang Seng Index (HSI) fell more than 6%.
China-related ETFs dropped sharply and were some of the biggest losers of the week. The Xtrackers Harvest CSI 300 China A-Shares ETF ASHR -0.69% lost almost 14% over the week, and the KraneShares CSI China Internet ETF KWEB 1.04% lost almost 10%.
Deutsche Bank estimated that the total size of both fiscal and monetary stimulus could potentially reach CNY7.5 trillion, or 6% of GDP in 2024. That would make it the largest package in yuan terms and the third largest relative to GDP, Reid said. On the fiscal side, a CNY2 trillion yuan package would be comparable in size to what the government did in its 2020 pandemic response combined with other measures (see chart below).
“So Monday will be a busy day for prices in Chinese stocks…”The CSI 300 is still up more than 21% since September 20, but this week’s drops show how much the rally depends on hopes of stimulus, especially when it comes to the fiscal part of the package, Reid said.
Also, Kristina Hooper, chief global market strategist at Invesco, said in a Friday note that the stimulus “could also give a lift to industries in the European economy such as luxury goods manufacturers given their dependence on Chinese consumers.”
When it comes to the global economy as a whole, buyers will be keeping an eye on metals, especially copper, to see how people feel about any plans for stimulus.
Copper futures went up 1% on Comex on Friday after going up and down the previous day on fresh hopes for stimulus, but they were still down more than 2% for the week.
In a note, analysts at Sevens Report Research said, “Looking ahead, stabilizing copper prices will be a welcome and encouraging sign for the macroeconomic backdrop of markets in Q4’24. However, renewed selling pressure should be a source of caution for both economic growth expectations and risk assets more generally.”
Partner Center
The most popular
When Biden and Harris were in charge, stocks did better than when Trump was in charge.
“This is something I’ve never done before.” I just got my engineering degree and now work for a company, but I’m not sure about money. What should I do?
Does the stock market open on October 12? Are the post office and banks closed?
At age 28, she quit her job in fashion to open a restaurant.
The emergency fund for my husband was robbed of $25,000 by my mother-in-law. We gave to charity instead of giving her a gift for her birthday, and she got mad.
