Happy Weekend Everyone!
Here is a quick recap of top news in China market in the past week.
China’s markets experienced significant volatility last week following a stimulus-driven rally, as investors await the government’s fiscal stimulus package.
The A-share market skyrocketed on Tuesday, the first trading day after the 7-day National Day holiday, with the trading turnover jumping above 3 trillion yuan to hit a new record high, but saw fluctuations throughout the rest of the week. Hong Kong stocks, on the other hand, suffered a major sell-off when A-shares resumed trading, before showing some signs of stabilization later in the week.
Despite the volatilities, many analysts remain optimistic about the market outlook. Goldman Sachs upgraded Chinese stocks to “Overweight,” forecasting an additional 15-20% gain. Citi held firm on its positive stance, raising its Hang Seng Index target by 24%, aiming for 26,000 by mid-2025. However, some cautioned that higher volatility may persist until clearer fiscal policy support from the government is announced.
After the market surge, financial regulators instructed banks to strictly prohibit bank loans from illegally entering the stock market. Nearly 20 banks have issued warnings against the misuse of loans for stock market or housing market following this regulatory guidance.
Notably, the recent rally has prompted many companies’ shareholders to reduce shareholdings. Since the start of the latest rally in late September, about 200 mainland-listed companies have announced plans to reduce shares. On Friday, the Beijing Stock Exchange reported that some investors violated share reduction regulations, imposing penalties and vowing to crack down on illegal stock sales.
The increased volatility also stemmed from investor disappointment over the message from China’s state planner, the National Development and Reform Commission (NDRC), during a Tuesday press conference. The NDRC refrained from announcing significant measures to support the economy, though it expressed confidence in achieving the 2024 targets.
In contrast, the Ministry of Finance provided a more encouraging update during a press briefing on Saturday, announcing a series of incremental policies to stabilize economic growth. The central government plans to raise the debt ceiling significantly to swap address local governments’ hidden debt, aiming to reduce their financial burden and free up resources for economic development. In addition, local governments will be allowed to use special bonds to acquire unsold homes and land reserves, a move intended to support the real estate market.
Further bolstering financial stability, the People’s Bank of China (PBOC) announced the creation of the “Securities, Funds, and Insurance Companies Swap Facility (SFISF),” with an initial size of 500 billion yuan. This facility allows eligible securities, funds, and insurance firms to use assets such as bonds, stock ETFs, and CSI 300 index stocks as collateral to obtain highly liquid assets like government bonds or central bank bills. In addition, the PBOC and the Ministry of Finance established a joint working group and vowed to strengthen coordination to ensure stability in the bond market and smoother government bond trading by the PBOC.
Other key headlines last week. China’s consumer inflation eased in September due to the slowdown in energy and service prices, while factory-gate prices dropped at their fastest pace since April, driven by fluctuations in international commodity prices and weak domestic demand. Notably, the government’s PPI survey is on the 5th and the 20th of each month, meaning that pre-holiday price hikes were not reflected in September’s PPI.
China’s foreign exchange reserves reached their highest level in nine years and the PBOC refrained from adding to its gold reserves for the fifth straight month. Additionally, major Chinese banks have announced adjustments to home mortgage rates, reducing them to Loan Prime Rate (LPR) minus 30 basis points, following a policy first introduced by PBOC Governor Pan Gongsheng in late September.
For faster, real-time reports on the China market, make sure to join us on Yuan Talks—we’re live every trading day!
