Markets expect China to roll out “significant” fiscal stimulus, says UBS By Investing.com

Investing.com — Markets are now expecting a “significant” fiscal stimulus package from the Chinese government, on top of a series of recently announced measures to support the country’s sluggish economy, according to analysts at UBS.

In September, Chinese officials unveiled a sweeping package of new policies, including a sweeping cut in interest rates and a reduction in existing mortgage costs.

The People’s Bank of China also announced a swap program with an initial size of 500 billion yuan, aimed at giving funds, insurers and brokers easier access to the financing needed to buy stocks. The PBOC also said it would provide commercial banks with cheap loans of up to 300 billion yuan in a bid to help them finance share buybacks and buybacks by listed companies.

Chinese stocks posted their best weekly performance in 16 years after last month’s announcement — a rally that continued last week.

Writing in a note to clients, UBS analysts said some market participants were now discussing whether China could roll out a potential fiscal stimulus package worth more than 10 trillion yuan. However, they argued that it might be more reasonable to expect a “more modest package of 1.5 trillion to 2 trillion yuan in the short term, while another 2 trillion yuan to 3 trillion fiscal expansion yuan” could come next year.

“We think a stimulus for 2024 could be announced immediately after the October break or around the (third quarter) date of October 18, while measures for 2025 could be decided during the Central Economic Work Conference (CEWC) from December 2024,” UBS analysts said.

In a separate note on Sunday, Morgan Stanley analysts added that the size and timing of the stimulus is likely to be viewed “positively” by onshore investors, “as it reaffirms Beijing’s commitment to reflation through more concerted policy efforts, albeit using the time – tested approach by trial and error.”

Consumer prices in China rose at their fastest pace in half a year in August, although the increase was largely due to a rise in food costs caused by weather disruptions, rather than a sustained recovery in domestic demand.

“We are hopeful but not yet confident” China’s policy shift will boost growth in the world’s second-largest economy, Morgan Stanley analysts said.

(Reuters contributed reporting.)