The Chinese government has prioritised rebooting the country’s flagging economy and unveiled a dramatic stimulus package last month. But initial investor enthusiasm may be tapering off amid follow-up announcements that have been short on specifics.
Fast reading
- At the most recent Politburo meeting, President Xi Jinping outlined a far-reaching commitment to enact measures that protect the economy, property and equity markets from further deterioration – it was a clear ‘whatever it takes’ statement.
- Officials have launched a series of fiscal and monetary stimulus measures, but investor enthusiasm has been tempered by a lack of clarifying detail. Recent actions include cuts to benchmark lending rates.
- The Chinese government appears to be navigating a delicate balancing act, caught between wanting to drive a sustainable recovery, and avoiding another debt-fuelled bubble.
In late September, the Beijing government announced a broad package of monetary stimulus measures designed to breathe fresh life into the country’s faltering economy. The programme included a cut to the amount of capital banks are required to keep in reserve, liquidity support for equity markets, and increased support for the property sector.
The measures lit a fire under Chinese stocks as investors piled in, with many companies trading at cut-price valuations. The Hong Kong Hang Seng index quickly rose to become the best performing major global market this year, up 33%, compared to under 20% for the S&P 500 index1. Meanwhile, the Hang Seng Tech Index, which tracks 30 Chinese technology companies listed in Hong Kong, soared more than 45% in the space of under four weeks.
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