Chinese stocks on track for best week since 2008 after stimulus blitz

Chinese equities are set to record their strongest week since 2008, following the Chinese government’s announcement of an extensive economic stimulus package, which includes a sizable $114 billion fund aimed at revitalizing the stock market. The CSI 300 index, which monitors shares on the Shanghai and Shenzhen exchanges, has surged nearly 15 percent this week, marking its most robust performance since November 2008, when a comparable stimulus was introduced in response to the global financial crisis.

According to BBC, “The RRR will initially be cut by half a percentage point, in a move expected to free up about 1 trillion yuan ($142bn; £106bn).”

This notable rally coincides with efforts by China’s leadership to strengthen the country’s capital markets, stabilize a struggling property sector, and boost domestic consumption to achieve an annual economic growth target of 5 percent. On Tuesday, the People’s Bank of China revealed an 800 billion yuan ($114 billion) lending initiative designed to support capital markets. This program will allocate funds to companies for share buybacks and to non-bank financial institutions, such as insurers, for investing in local equities.

On Friday alone, the CSI 300 index climbed 3.8 percent, while the Hang Seng index in Hong Kong increased by 2.8 percent, culminating in a weekly gain exceeding 12 percent—the best weekly performance since August 2007, just before the onset of the global financial crisis.

Nicholas Yeo, head of China equities at Abrdn, stated, “We are at a pivotal moment for the Chinese economy and its equities market,” adding that the U.S. Federal Reserve’s recent interest rate cut could provide significant support for China. “Global easing conditions are poised to bolster consumption, which is a boon for China, the world’s largest exporter,” he noted.

Expectations for additional stimulus measures in China have also positively influenced European markets, with the Stoxx 600 index closing at a record high on Thursday, propelled by luxury brands anticipating increased consumer spending from China.

The recent rally in Chinese markets followed notable gains on Wall Street, with the S&P 500 closing at a record high for the third time this week, buoyed by investor sentiment ahead of Friday’s inflation report.

Despite earlier restrictions imposed by Chinese authorities in August on northbound data through the Hong Kong Stock Connect program—which limits the visibility of foreign investor flows into mainland stocks—interest remains robust. Citi reported that the past three days marked a record for its equities sales and trading team in the Asia region, with unprecedented client flows into both Hong Kong and mainland Chinese equities.

On Friday, the Shanghai Stock Exchange issued a warning regarding “abnormally” slow transaction speeds resulting from heightened trading activity in the morning session, according to sources familiar with the matter.

Winnie Wu, an equity strategist at Bank of America, emphasized the significance of the government’s new approach. “We can’t dismiss this as the same old policy,” she stated. “This is the first time that the government is encouraging leveraged investment in the stock market. A liquidity-leveraged rally should still have significant room to go.”

David Chao, a global market strategist at Invesco, expressed optimism about the sustainability of the rally in Chinese stocks. “China markets are about momentum, and I see certain parallels between the existing rally and that of the 2014-15 rally,” he noted, referencing the period when Shanghai’s index soared approximately 150 percent from June 2014 to June 2015 before ultimately collapsing.

Chao further predicted that as the dollar continues to weaken due to Federal Reserve interest rate cuts, there could be a shift in investor focus from the high-priced and crowded global tech sector toward more affordable emerging market assets.

The rapid resurgence of Chinese stocks reflects broader themes in the global financial landscape, with investors keenly watching for signals of sustained growth and stability amid shifting economic conditions.