China's Economic Stimulus Measures Spark Market Rally Amid Challenges

Experts weigh in on durability of China's sizzling stock rally

Chinese stocks have exploded upward as the government unveiled economic stimulus measures over the past week. The market has seen record trading volume, and the benchmark CSI 300 Index has skyrocketed 25% since Sept. 23 to 4,018. To be sure, that's still more than 30% below its February 2021 record. Among popular U.S.-listed Chinese stocks, Alibaba (BABA) , the world's largest e-commerce company, has jumped 25% since Sept. 23. And Yum China, (YUMC) the country's largest restaurant chain, has climbed 30%. Don't miss the move: Subscribe to TheStreet's free daily newsletter As for the bazooka-style stimulus, the central bank announced a series of interest-rate cuts, reduced bank-reserve requirements and a program to fund stock purchases by institutional investors. In addition, the government pledged to increase spending, though it was short on specifics. On the housing front, the latest leap came after three of China's biggest cities loosened regulations for home purchases, and the central bank moved to lower mortgage rates. Residential real estate is a key -- and struggling -- industry for the nation of 1.4 billion. The Chinese stock market has slumped over the past three years as the economy weakened. China's economic growth is sluggish GDP grew an annualized 4.7% in the second quarter, the weakest in more than a year and below the government's target of 5%. (Experts say China's government likely exaggerates growth figures in any case.) Stronger economic expansion could be a boon for the stock market, boosting corporate earnings. Many investors in China bubbled over with optimism after the government's moves. "It's really a big turnaround; the policies are so intensive. We have never seen such clear instruction to stop housing prices declining and support the stock market," Dickie Wong, executive director of research at Kingston Securities, told Reuters. Related: Single Best Trade: Veteran fund manager picks Chinese stock "Many foreign investors are afraid of missing out. Local retail investors are asking me what they should add to. Institutional investors are rushing to the market to catch up." Even U.S. stocks received some support last week from the China news. But not everyone is losing their mind over the government stimulus package. China has announced similar moves before without much impact. Until the real estate market recovers and middle-class consumers have enough income and confidence to spend it, the economy will remain in the doldrums, many experts say. Veteran fund manager is skeptical of China rally Count TheStreet Pro columnist Ed Ponsi, managing director of Barchetta Capital Management, as one of the skeptics. "While everyone else is dancing, I hate to be the guy in the corner with a thought bubble that reads, 'They don't know that none of this is real,'" he wrote. Related: Stock Market Today: Stocks end higher on China aid boost, Micron AI outlook "That's the problem. It's not real. China's bazooka is nothing but smoke and mirrors. With its decision to prop up the stock market using government funds, China has taken a literal joke -- 'plunge protection team' -- and made it a reality." The plunge protection team was a nickname for the U.S. Working Group on Financial Markets. It was formed in 1988 to provide recommendations to the U.S. president during times of market stress. Experts have doubts about stimulus Already there are signs that China's stimulus plan is running out of steam, Ponsi said. China is the world's biggest consumer of copper, at 57%. Yet after a three-week rally, copper has dropped 2% since Thursday. That's bad news for China, he said. "We can look to this industrial metal for clues about China's health, as well as the health of the global economy." Fund manager buys and sells: Others have their doubts too. "Amid all the euphoria, the structural issues are still there" for the economy, Rory Green, chief China economist at GlobalData TS Lombard, told The Wall Street Journal. Memories of past government failures to boost the economy are top of mind for many experts. "My concern about a potential replay of the previous disappointing cycle lingers," Hebe Chen, an analyst at IG Markets, told Bloomberg. "It's still too early to tell if this golden-week rush will blossom into a true gold rush or fizzle out into another mirage." Related: The 10 best investing books, according to our stock market pros

China: How Far Will the Stimulus-Fueled Bullish Frenzy Go? | Investing.com UK

Looking for actionable trade ideas to navigate the current market volatility? Unlock access to InvestingPro's AI-selected stock winners for under $9 a month! China's comeback could be the most dramatic market story of the year. After months of sluggish post-Covid growth, Beijing unleashed its economic "Bazooka", flooding the market with liquidity and igniting a powerful rally. Within days, major brokers shifted their stance on China from "uninvestible" to something worth considering. In the week that followed the stimulus, the Hang Seng surged over 22%, and the Shanghai Shenzhen CSI 300 posted its best week since 2008, soaring 25%. Markets are now asking two key questions: Will these measures be enough to lift China's economy, and how long will the stock rally last? On the economic front, Beijing's intervention resembles a "whatever it takes" moment for the People's Republic. The timing was perfect too, coming right after the Fed's first U.S. rate cut, aimed at defending the Yuan. The goal? Free up banks, rescue the housing market from crisis and flood the economy with liquidity. The message from Beijing is loud and clear: they'll do whatever it takes to reignite growth. This is exactly what investors seemed to be waiting for. Concerns over a recession in the West, which many feared but has yet to materialize, led investors to stockpile cash. Now, Chinese stocks are drawing them back in. For months, analysts urged caution, suggesting investors wait at least until after the U.S. elections in November. But China's bold turnaround presented an irresistible opportunity. Capital is now flowing into the Shanghai and Hong Kong stock exchanges. While U.S. tech stocks have become expensive, their Chinese counterparts still trade at a discount, with price-to-earnings ratios that look tempting. Even after recent gains, Chinese stocks are trading at steep discounts compared to most global markets, with earnings multiples roughly half that of the U.S. Matteo Ramenghi, chief investment officer at UBS WM in Italy, notes that despite the similarities in sector composition, the MSCI China index remains undervalued, particularly when it comes to technology stocks. Still, investors are approaching China's stock market cautiously. As Ramenghi points out, Chinese tech companies have compressed multiples, and leaders in sectors like artificial intelligence could benefit from China's ongoing development of its tech ecosystem. However, Lizzi C. Lee, a researcher at the Asia Society Policy Institute, believes it's too early to declare victory. While the recent rebound in Chinese stocks is significant, she argues that lasting momentum will require more than short-term stimulus. Long-term success hinges on Beijing's ability to push through structural reforms. "The long-term success of this rally-and, by extension, of China's broader economic recovery-depends on Beijing's ability to implement meaningful structural reforms." "The coming months will reveal whether the recent policy turnaround can yield a lasting economic turnaround or whether the current surge will prove ephemeral." While the market enthusiasm is palpable, challenges remain. Investors can't forget the sharp correction of 2015 when the Shanghai CSI 300 plummeted nearly 45% from its June highs. But China's economy has evolved since then. Both the Covid pandemic and the real estate crisis have taught Beijing valuable lessons, giving the leadership hope for a more stable future. Mark Tinker, chief investment officer of Toscafund Hong Kong, believes the latest measures signal a shift in China's strategy. "Xi Jinping's goal is no longer rapid growth at any cost, but sustainable household demand," he explains. "Five percent growth means little if it fuels destabilizing leverage." China is aiming to show it can grow sustainably, and a thriving stock market is key to that vision. However, it's clear that China's future isn't being shaped in Beijing alone -- it's also being influenced by decisions made in Washington. With the U.S. election looming, whoever takes the White House will have to reckon with China's growing ambitions. Both political parties seem to agree on one thing: the U.S. isn't eager to see China's Dragon soar unchecked. ***