Chinese Stocks Post Best Day in 3 Years on Stimulus Hopes

The Chinese blue-chip index posted its best day since 2022 on hopes of government stimulus. 

China 50 – Daily Chart

China 50 – Daily Chart 

The Chinese stock market has broken from crucial resistance this week, and 11,569 is the first obstacle to higher prices. 

A collection of announcements from China’s securities regulator stated that an upcoming meeting between President Xi Jinping and financial regulators showed an urgency of Chinese authorities to curb heavy losses in its stock market. State fund Central Huijin Investment also reported on Tuesday that it has expanded its scope of investment in exchange-traded funds. 

China’s blue-chip 50 stock index plunged to a five-year low last week on the back of the country’s struggling economy, which had prompted state-backed investors, known as the “national team”, to increase the buying of blue-chip stock tracking index funds to support the market. 

After Tuesday’s developments, Chinese stocks soared more than 3%, the most significant one-day percentage gain since 2022. Hong Kong’s Hang Seng Index jumped 4%, the most powerful daily gain in six months.

“The signals from authorities are very clear, they want to prevent the markets from falling further,” said Ryota Abe, an economist at SMBC. 

“These kinds of measures were needed to support investors’ sentiment, so the initial reactions were all positive. However, as long as markets have fundamental concerns on the real economy, the slew of announcements will remain effective only in the short term.” 

Chinese inflation data will be released on Wednesday. Markets expect a further slump into deflation territory, with a reading of -0.5%, down from -0.3% last month. 

On Monday, Gene Ma and Phoebe Feng from IIF said they expect China’s growth forecast to be 5% this year, above the 4.6% consensus estimate. However, that hinges on Beijing officials’ adequate policy response.  

“The deflation means the PPI-adjusted real lending rate stayed elevated in 2023, tightening the credit condition despite the moderate monetary easing,” Ma and Feng said.  

CNN also reported that a team of five US Treasury Department officials are travelling to Beijing this week for a series of meetings on the economy with the Chinese government.

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