Chinese stocks concluded a turbulent morning session on a positive note, buoyed by investor optimism regarding potential fiscal support measures announced by the finance ministry over the weekend.
As of the midday break on Monday, the CSI 300 Index was up 1.5%, recovering from an earlier decline of 0.5% and approaching its session high.
The index experienced its steepest weekly drop since late July on Friday. Meanwhile, a Bloomberg Intelligence index tracking Chinese developers rose by 1.7%, having previously surged by over 4%.
These fluctuations reflect a cautious optimism among traders who are keenly awaiting further details about the fiscal policies.
During a Saturday briefing, Finance Minister Lan Fo’an hinted at forthcoming measures to bolster the property sector and suggested increased government borrowing, though he did not provide a specific dollar amount.
Heightened fiscal spending is perceived as crucial for maintaining the stock market rally that began after the central bank’s stimulus measures in late September.
In a note from HSBC Holdings Plc, economists, including Jing Liu, remarked:
Despite no large fiscal stimulus number, the MOF press conference was still an upside surprise to us. The policy pivot looks very much here to stay, with the improving risk appetite creating a wealth effect in both the stock and property markets.
Additionally, an index of Chinese shares traded in Hong Kong managed to recover most of its earlier 2.7% decline.
Recent data indicated that China’s deflationary pressures deepened in September, with consumer prices remaining subdued and factory gate prices continuing to decline.
In response, officials from various government departments pledged to enhance policy support for businesses during another briefing on Monday.
Cautious outlook
At the Saturday briefing, Lan and his deputies announced that local governments would be permitted to utilize special bonds for purchasing unsold homes, although they did not specify an amount.
Lan also hinted at the potential for issuing more sovereign bonds and expressed a commitment to alleviating local government debt burdens, suggesting the possibility of a rare budget revision in the coming weeks.
Before the weekend, a survey conducted by Bloomberg indicated that investors and analysts anticipated the Chinese government might introduce as much as 2 trillion yuan ($283 billion) in new fiscal stimulus, encompassing potential subsidies, consumption vouchers, and financial support for families with children.
Market volatility had intensified in the lead-up to the Ministry of Finance (MOF) briefing, with the CSI 300 Index experiencing a 3.3% drop last week. As the momentum slows, concerns may arise that the recent rebound could be yet another fleeting moment.
The market has previously endured cycles of gains and losses due to Beijing’s fragmented approach to stimulus, often leading to only temporary recoveries.
“I suspect November’s US election and the FOMC could delay large stimulus to December or later, and investors might stay away before that and third-quarter results, so upside could be a bit capped for now,” noted Xin-Yao Ng, an investment director at abrdn Asia Ltd.
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