On Monday, September 30, Chinese stock indexes showed the largest one-day gain in the last 16 years.
The mentioned upward dynamic is observed against the background of increased investor desire to join the rally associated with Beijing’s new measures to stimulate the economy. Also, on Monday, domestic A-shares in China demonstrated the highest turnover in its entire history.
The CSI 300 blue-chip index is up almost 30% from its February low. From the point of view of some definitions, the corresponding indicator is in a bull market. At the same time, most of the gains have happened very quickly and in a few sessions since last week.
Many traders, acting based on fears that they might miss the opportunity to benefit from the upward dynamic ahead of the week-long holidays that begin on Tuesday, October 1, contributed to the growth of the CSI 300 index by 8.5% at the close. The five-day gain of this indicator exceeded 25%, becoming the strongest in the entire history of observations.
The broader Shanghai Composite index recorded a total turnover of 1.17 trillion yuan ($166.84 billion). This indicator increased by 8.1%.
The upward dynamic of stocks began after that last week, the Chinese authorities announced additional measures to stimulate the economic system of the Asian country, which is the second largest in the world. At the same time, Monday, in the appropriate context, became a special day when securities’ growth accelerated significantly, reaching historical levels in a certain sense.
Monday also turned out to be the best single-day percentage gain for both the CSI and SSEC indexes since 2008.
The smaller Shenzhen index rose 11%. In this case, a turnover of 1.4 trillion yuan was recorded.
As for the measures to stimulate the economy, which Beijing announced last week, in this case, there is an unequivocal determination of the authorities. In the context of the relevant measures, decisions such as cutting interest rates and fiscal support were taken. Beijing aims to restore the pace of economic growth, for which the period of the coronavirus pandemic has become a very difficult and painful period. The momentum of the upward dynamic is gradually weakening. In the first quarter of 2024, China’s economy grew by 5.3% year-on-year. In the second quarter, the pace of this process slowed down to 4.7%. At the same time, the Chinese authorities’ goal is economic growth of about 5% in 2024.
Also, as part of stimulating the growth of the value of stocks, the People’s Bank of China has introduced two new tools for the shore-up of the capital market. One of these tools is the swap program, which makes it easier for funds, insurers, and brokers to access financing for the buying of equities. The efforts of the Asian country’s financial regulator have already demonstrated a high level of efficiency. Currently, Chinese stocks are on an upward trajectory, although back in early September, the value of securities approached multi-year lows. It is worth noting that the mentioned downturn was related to investors’ concerns about the prospects of the world’s second-largest economy. The stimulus measures announced by Beijing last week significantly eased the specified concerns and gave rise to an optimistic vision for the foreseeable future of China’s economic system. At the same time, it is too early to draw final and generalizing conclusions about the degree of effectiveness of the efforts of the Asian country’s authorities to ensure an upward dynamic of the economy. Most of the incentive measures have not yet been fully implemented. There is also no guarantee that the currently observed growth in value stocks will turn out to be a sustainable and long-term process that will not lose what can be described as the initial euphoria associated with the fact that Beijing has officially declared its intention to back the economy.
Dickie Wong, executive director of research at Kingston Securities, commenting on the mentioned decisions of the Chinese authorities, said that there had never been such clear instructions to stop the decline in housing prices and support the stock market.
Hong Kong’s Hang Seng index showed an increase of 2.4% on Monday. This indicator has grown by about 24% for the year. Against the background of the mentioned results, Taiwan has become the best-performing stock market in Asia.
The positive dynamic observed on Monday is also largely because last Sunday, September 29, it became known that the People’s Bank of China would tell lenders to lower mortgage rates for existing home loans before October 31. This decision is part of comprehensive measures aimed at improving the situation in the Asian country’s real estate market, which has recently been in a downturn. It is worth noting that the situation in the mentioned market is gradually becoming more and more similar to what can be described as a structural and fundamental deterioration process. Also, in this context, it is important to pay attention to the fact that the state of affairs in the real estate market is a factor of sensitive impact on the entire economic system of China and limits its growth opportunities.
Guangzhou City also announced the lifting of all restrictions on the purchase of housing. Shanghai and Shenzhen have not abolished similar restrictions, but have weakened these norms.
Against the background of the mentioned decisions, an increase in the value of shares of companies operating in the area of property was recorded. Stocks of the corresponding firms listed on the Chinese mainland rose 8.2%. The Hang Seng Mainland Properties index rose 6.4%.
Investors’ optimism that Beijing’s announced economic stimulus measures will help revive sluggish consumption in China has also been a factor in rising shares of consumer staples up 8.8%. In this case, the biggest daily gain in the last 16 years has been observed.
The CSI 300 index clocked a gain of 21%. This indicator of the rising is the best since December 2014.
The Shanghai Composite index grew by 17%. This indicator showed an increase, which turned out to be the largest since April 2015.
The Hang Seng index grew by 17% after delivering its biggest weekly rise since 1998 last week, and fifth largest in the last half-century. Also, in this case, the monthly growth was the best since November 2022.
The financial markets of mainland China will be closed from October 1-7 due to National Day holidays.
Also on Monday, it became known that factory activity in the Asian country continues to contract. Besides, the Chinese service sector slowed down in September. The media note that the corresponding dynamic is observed meanwhile Beijing has announced a set of measures to stimulate the economy.
The official manufacturing purchasing managers’ index in September in China was fixed at 49.8. The non-manufacturing PMI in the current month in the Asian country was 50. The services PMI in September in China was 49.9. The corresponding data were released on Monday by the National Bureau of Statistics. It is worth noting that this information is evidence that the downturn continued before Beijing announced measures to stimulate the economy. For the Chinese stock market, the statement of the relevant intentions of the authorities of the Asian country has become a factor of positive impact.
Xin-Yao Ng, director of investment at abrdn Asia Ltd., suggests that the macroeconomic data for September will not matter to the markets. According to the expert, it’s all forward-looking about what fiscal stimulus measures will be taken.
Economists Chang Shu and Eric Zhu said that the weakness of the Chinese economy, as evidenced by the PMI data, shows why the government of the Asian country has taken moves to support growth. According to them, to sustain the boost to confidence, and kindle a genuine recovery, the implementation of measures, especially in the fiscal area, will be crucial.
The media reported that this year the Chinese Ministry of Finance intends to issue special sovereign bonds worth 2 trillion yuan. It is known that half of these funds will be used to boost consumption.
The downturn, which began against the backdrop of the coronavirus pandemic, actually in significant scope continues to be a reality for China’s economic system. The implementation of the measures announced by Beijing will likely form a new, more positive configuration of the mentioned reality.
