Chinese stocks soar again on hopes for further stimulus

By Steve Goldstein

Chinese stocks soared on Monday, extending gains for the beleaguered asset class on hopes policymakers will pair their monetary support with fiscal policy action.

The Shanghai Composite CN:SHCOMP, which jumped 13% last week, leaped 8% on Monday. The Hang Seng HK:HSI, up 13% last week, added 3% on Monday.

JD.com (HK:9618) (JD), the Chinese retailer whose stock Walmart (WMT) entirely dumped last month, jumped 12% in late Hong Kong trade as Li Auto (HK:2015) (LI)rallied 10%.

Morgan Stanley late Sunday had forecast at least another 10% stock-market rally in the near term. They expect a supplementary budget between 1 trillion ($140 million) and 2 trillion yuan next month as well as more rate cuts and looser housing market rules.

"Over the past week, the key stimulus has come on the monetary and property fronts, which we believe will be insufficient given their weak policy multiplier amid the prevailing deleveraging cycle," they said.

"In our view, to decisively exit deflation, more central government leverage is needed to expand the housing buyback program and support social welfare reforms, and the optimal stimulus size should be >US$1trn over a two-year horizon. However, the initial pace and size of the policy pivot will likely remain modest," they added.

Economists at Citi were not sure there will be an interim budget revision but did note there was about 3.3 trillion yuan of space to do so.

Analysts at BCA Research upgraded emerging markets equities to neutral from underweight as they also said a long Chinese equities paired with a short of Indian stocks could work. "Chinese stocks' relative valuations are indeed so depressed that the bar is low for improved investor sentiment to trigger a mean reversion," they said.

-Steve Goldstein

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09-30-24 0358ET

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