China’s stock market, long struggling with various economic challenges, is beginning to shed its “uninvestable” image after the government unveiled a new wave of aggressive stimulus measures this week. For years, China’s market has lagged behind major global indices like the S&P 500, Germany’s DAX, and the UK’s FTSE, despite the country’s status as a manufacturing and tech powerhouse.
Since 2021, China has grappled with several hurdles that weighed on its market, including its stringent zero-COVID policies, a real estate crisis, and mounting debt. Various government efforts to spark recovery had little impact. However, this week’s new stimulus package, largely focusing on monetary policy, could be the turning point.
The latest round of measures aims to inject liquidity into the economy and make borrowing easier for businesses, provided there’s demand for loans. The response has been immediate. For the first time in years, Chinese stocks have charted an upward trajectory, as investors hope this signals a fundamental shift in the country’s economic outlook.
Our Chart of the Week illustrates this market transformation, showing a sharp rise that’s changed the previously downward trend into what looks like the beginning of a recovery.
“Global investors had deemed Chinese equities almost uninvestable, despite the potential in the world’s second-largest economy,” Nicholas Colas of DataTrek noted in a report to clients. He added that this week’s surprise fiscal and monetary policy actions are prompting a re-evaluation of China’s market potential.
The market boost has even drawn endorsements from high-profile investors like billionaire David Tepper, who suggested it might be time to buy “everything” in China.
This reappraisal is grounded in the government’s recognition that far more aggressive economic interventions are needed to unlock China’s growth potential. “China’s leadership has finally acknowledged that the country’s economy needs much more monetary and fiscal stimulus if it is to achieve its growth potential over time,” Colas wrote.
However, not everyone is convinced. Charles Schwab’s chief global investment strategist Jeffrey Kleintop remains cautious, observing that “the jury is still out” on whether the new measures will work in the long term. While it’s too early to determine if this will fully reverse China’s economic fortunes, the initial market reaction suggests investors are feeling more optimistic.
The shift in sentiment alone has been enough to boost Chinese stocks, offering a glimmer of hope that the country’s economic trajectory may finally be turning around.
