Chinese investors are eagerly awaiting more policy direction from China’s top economic planning body, the National Development and Reform Commission, when markets reopen after a week-long holiday. Authorities have signaled a sense of urgency in revitalizing the economy to hit the annual growth target of around 5%. Before the holiday, Beijing unveiled several stimulus policies, such as interest rate cuts, lower cash reserve requirements for banks, and liquidity support for the stock markets, leading to a surge in Chinese major indexes of over 25%.
The week-long holiday saw significant gains in Chinese markets, with the CSI 300 blue-chip index extending a nine-day winning streak and Hong Kong stocks trading above 23,000 for the first time since 2022. Futures contracts tied to major Chinese indexes have also seen substantial increases, reflecting investor optimism. The market has been eagerly awaiting more specifics on fiscal spending promised by Beijing on September 26. The Ministry of Finance has not yet announced major policies to support growth, leading to expectations for additional fiscal stimulus to maintain the rally’s momentum.
Speculation continues as investors eagerly await the NDRC’s press conference on Tuesday for more concrete details on new policy measures. The market’s optimism may continue in the near term, albeit at a slower pace, depending on how aggressively policymakers implement follow-up support measures. Some experts believe that the rally’s momentum depends on real economic improvements to justify current valuations. A-shares are trading at historical valuation levels, indicating that there may be limited room for further market rallies without substantial changes in the economy.
Market observers have varying expectations for the NDRC’s announcement, with some anticipating a 2-trillion-yuan fiscal package to support local government finances, bank recapitalization, and consumption. Others forecast a more modest package, signaling Beijing’s commitment to ending deflation and supporting growth. Citibank raised its forecast for Hong Kong’s Hang Seng Index, citing expectations of significant economic stimulus measures and a 3-trillion-yuan consumption support package. The market’s reaction to the NDRC’s press conference is uncertain, with some experts warning of potential underwhelming announcements leading to a market correction.
Economists are closely watching policymakers’ actions beyond the initial stimulus measures to boost consumer confidence and economic activity. The effectiveness of fiscal stimulus in China has often been limited, reflecting in muted market reactions. To sustain market momentum, policymakers may need to focus on stimulating wage growth, consumption, and overall consumer confidence. While the market has seen significant gains in recent weeks, continued economic improvements will be necessary to justify current valuation levels and support future market rallies.
The implementation of additional fiscal policy measures and their impact on the real economy is crucial for sustaining market optimism. Analysts are monitoring how quickly and aggressively policymakers respond with supportive policies following the long holiday break. While there is optimism for continued market rallies, potential shortcomings in policy implementation could lead to a downturn in market sentiment. The NDRC’s press conference will provide insights into Beijing’s economic strategy and the market’s expectations for future growth.
