An announcement by China’s ruling party about its intention to implement an incentive plan to promote economic activity in the country, jumped the shares of the giant Chinese companies traded on Wall Street, as well as China’s stock indices at the beginning of the trading week (Monday). However, the next day there was already a certain relaxation.
On Monday, the Heng Seng index of the Hong Kong Stock Exchange jumped at a relatively sharp rate of 2.7%, completing an increase of about 6.6% in two weeks. Since the beginning of the year, the Chinese index has risen nicely (21%), but at a more moderate rate than Wall Street’s flagship indices. In a broader perspective, it has fallen about 16% in the last three years – compared to a rise of about 30% in the S&P 500 index during the same time.
Shares of giant firms from China traded on Wall Street also rose on the second. For example, US-traded electric vehicle manufacturers such as Lucid, Xpeng and Rivian jumped by double digits, while the shares of Chinese Internet giant Baidu and leading retailer Alibaba rose by almost 8% each. However, their prices are still quite far from their peak levels in 2021.
Experts are trying to assess the factors that led to the ruling Communist Party’s announcement of the expansion plan (a possible reduction in interest rates and an increase in government spending), which may stabilize the weak domestic consumption in China, and are still hesitating to determine whether it is worth investing in Chinese stocks following it.
What is behind the Chinese announcement?
There were those in the American media who presented the Chinese announcement as a sort of trial balloon in preparation for dealing with the imposition of tariffs by President-elect Trump, in the future. “In China, the Communist Party officially announces an expansionary economic policy and puts the country on a collision course with the West,” says Ofer Klein, head of the economics and research department at Harel Insurance and Finance. In an economic review he published, he wrote that “Inflation in China continues to disappoint when it rose by only 0.2% in the last 12 months (0% excluding food prices), less than expected and another signal of weakness in local demand. In the last two months, the government and the central bank accelerated the expansionary policy, with the aim of changing the sentiment, but in the meantime the results were mixed.”
Klein refers to the Chinese real estate market which has been showing weakness for a while, which in his estimation is “among the factors that led the administration to announce that next year it will switch to an expansionary policy strategy, alongside an announcement that the fiscal policy will be more ‘active’ in 2025.
“So far, the announcement was devoid of details, but we expect to see the interest rate drop as early as next week (and beyond) and we will hear about additional fiscal measures even before the Chinese New Year (at the end of January 2025). It is important to note that implementing such a policy is expected to continue to increase China’s trade surplus with the world, and bring it on a collision course with the US and Europe.”
Where does optimism come from?
“There have already been increases similar to this in the past that didn’t last,” Dr. Gil Befman, Bank Leumi’s chief economist, analyzes the surge in Chinese stocks. “For now, caution is required and the expectation is still for ‘underperformance’ on the part of Chinese stocks during the next year .
“What may produce change, contrary to the statements given in the past that did not deliver the goods, are more significant steps.” Bafman explains that “the expansion measures we are talking about now were determined at the Politburo meeting in December, with the monetary policy being moved for the first time in 14 years – from a ‘balanced’ position to a more ionic formulation of ‘somewhat loose'”.
That is, for the first time in a long time, monetary easing may come, and in fact – an interest rate reduction in China, and Befman estimates that this was part of the trigger for the latest wave of increases, when it “sparked optimism around China’s stock markets.”
The announcement in China that hints at the expansion of the government’s (fiscal) budgets mainly encourages consumer sector stocks. According to Bafman, it has become the sector with the best performance in the Hang Seng index, and is a large part of the stock market there (30% of the MSCI China index). “Its price seems particularly low compared to other sectors, yet any turnaround in the stock market will have to face the threat of American tariffs soon from the Trump administration.”
When will the Chinese “bazooka” arrive?
The markets do have experience with vague hints and plans from the Chinese government, which in the end did not materialize in the way they expected, as Rinat Ashkenazi, chief economist at Phoenix Investment House, mentions. According to her, “The West is on high alert when everyone is asking when the ‘bazooka’ (code name for the fiscal expansion program, HSH) will arrive. Last September and November there were monetary and fiscal moves taken by the Chinese government, but the market expected more. It seems that the measures were not enough to stabilize the economy there which is in trouble.”
What is expected next in China? Ashkenazi points out that “these days a sort of ‘foreplay’ of the Politburo is starting in China. Now there will be a big conference of the party that will be discussed next year. There is an expectation to see implementation in terms of the policy and that is what the markets are waiting for. The markets really want to see the deficit in China increase (to stimulate the economy, h Q), unlike other places in the world. In light of the situation, we see a strong need for fiscal incentives. And that’s why the markets are rising with the hope that maybe this time China will be like the US in terms of significantly increasing government spending.”
Is it time to invest in China?
“It’s still risky,” warns Ashkenazi from Phoenix when asked if it’s worth investing in the Chinese stock market. “I want to see more signs that this is going in the right direction. Investors have been burned more than once on the issue. The regime there comes with agendas that are very different from Western concepts.” However, she does not rule out investing in the Chinese market: “First of all, in view of a possible renewal of the trade war (with the US), and even after the markets became more expensive, especially in the US, there is a dynamic in which they look for what has not risen very much and has potential.”
Against the background of possible government moves in China, Ashkenazi turns the spotlight to the neighboring economy – Japan. According to her, in the past year, this has become an example of an economy that interests Western countries and also other countries in Asia. In August, the Japanese stock market unexpectedly plunged, due to fears of abandoning the zero interest rate policy there. However, later the stock market in Tokyo recovered quickly. Since the beginning of the year, the Nikkei 225 index in Japan has risen by 18%, but from the lowest point to which it plunged in August, it jumped by 25%.
Japan managed to stop the aforementioned stock market collapse, and the government there took confidence-building measures. Steps that the Chinese have so far been unable to lead successfully. As a result, Ashkenazi explains, “Every country wants to be a little like Japan, but in its own way… Perhaps a trade war (against the US) will lead to structural reforms in the various economies, and in the coming year, new star countries will emerge, in several places in the world, that have not risen significantly so far.” .
For your attention: The Globes system strives for a diverse, relevant and respectful discourse in accordance with the code of ethics that appears in the trust report according to which we operate. Expressions of violence, racism, incitement or any other inappropriate discourse are filtered out automatically and will not be published on the site.