Chinese stocks post best week in a decade on Politburo vows

(Bloomberg) — The long-awaited recovery in Chinese stocks may finally be here.

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The CSI 300 index is headed for its biggest weekly gain in nearly a decade after China’s top leaders pledged a firm commitment to increase fiscal support and stabilize the housing sector to revive growth. The gauge’s 4.2 percent gain on Thursday was led by consumer stocks, and the gain put the benchmark on course to halt an unprecedented three-year losing streak.

The Politburo’s swearing-in follows one of China’s boldest political campaigns in decades and, taken together, could finally help lift Asia’s biggest economy out of crisis. The stakes are high: China is increasingly left out of emerging-market equity fund launches, and top Wall Street banks such as Morgan Stanley and Goldman Sachs Group Inc. have become increasingly the most skeptical about the recovery story.

“It shows that Beijing cares,” said Siguo Chen, portfolio manager at RBC Asset Management, referring to the latest policy announcement. “Whether these measures will be effective is another matter, but admitting there is a problem with the economy that needs to be addressed is the first step.”

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Officials also called for the forceful implementation of interest rate cuts and a required reserve ratio for banks, easing measures announced by the People’s Bank of China this week. They would seek to stimulate the capital market and “heavily steer” medium and long-term funds towards the stock market, according to the meeting’s reading. The language showed renewed urgency from policymakers.

Consumer stocks led gains on the onshore gauge after the government’s announcement of a one-off cash grant for people in extreme poverty. A sub-gap of financial stocks was among the top performers after authorities were reported to be considering injecting up to 1 trillion yuan ($142 billion) of capital into its biggest state-owned banks.

Optimism extended beyond mainland stocks, with the Hang Seng China Enterprises index rising 4.8 percent to hit its highest level since February 2023.

Turnover in Shanghai and Shenzhen topped 1 trillion yuan for the second day for the first time since May, according to data compiled by Bloomberg. Increased activity is usually interpreted as an optimistic sign.

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Movements were more muted in currency and bond markets, with the yuan holding on to a modest gain and yields rising.

While most market watchers agreed that the simultaneous changes in several policy levers were encouraging, some warned that the rally may just be a tactical comeback. Doubts remain that the measures can solve China’s long-standing problems, including weak consumption, falling prices and an entrenched housing crisis.

“Unless there is a significant structural change, I think we will have a situation in markets similar to Japan, where we will have positive announcements, a spike, then a lack of tracking, then a quiet period, then positive news. , lack of tracking,” said John Woods, Asia Investment Director at Lombard Odier.

But for now, optimism is growing that this could be Beijing’s best chance yet to turn things around.

“Onshore stocks in Hong Kong and China rose immediately after the Politburo reading, showing investors don’t want to miss out on China’s rally, with stocks trading at multi-year lows and the biggest stimulus package announced in years ,” said Dickie Wong, executive director of research at Kingston Securities Ltd.

–With assistance from Winnie Hsu, April Ma, Sangmi Cha and Cormac Mullen.

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