“After Fed Offer, So Comes China:” Barclays By Investing.com

Investing.com — Equity markets have been rising recently, with cyclical stocks outperforming defensive stocks for the first time since May.

The increase followed a substantial 50 basis point (bp) cut in interest rates by the Federal Reserve last week, signaling a strong commitment to sustaining economic growth and raising hopes for a successful “soft landing”.

Elsewhere this week, China introduced a series of unexpected stimulus measures aimed at supporting its economy.

These steps included interest rate cuts, easing mortgage down payment requirements and improving liquidity support for the stock market.

“The concerted effort helped to boost sentiment from knocked-down Chinese stocks and leveraged markets across the region, particularly in Europe,” Barclays strategists noted.

While the long-term impact on China’s structural growth remains uncertain, current sentiment is bullish. Economists weigh the potential effects of a proposed CNY 5 trillion property stabilization fund and a CNY 4 trillion local government/consumption subsidy over the next two years.

According to Barclays, these initiatives could contribute an additional 1 percentage point to China’s gross domestic product (GDP).

“China’s strength, in the form of potential incremental stimulus to come if growth slows further, could generate more fear of missing out (FOMO)” among investors, the strategists continued.

China’s benchmark onshore shares, the Shanghai Shenzhen CSI 300, rose more than 15 percent this week, hitting its biggest weekly gain since the global financial crisis. Simultaneously, the NASDAQ Golden Dragon China index, which tracks U.S.-listed Chinese stocks, rose about 18 percent over the same period.

Within European equities, defensive positioning still prevails, “so more risk per rotation is the painful trade,” Barclays said.

“We would not call off our rally but keep a cool head given the significant tariff risks if Trump is elected president,” they added.