China Central Economic Work Conference: A Key Indicator for Future Market Trends

According to Bloomberg, China will convene its annual Economic Work Conference on Wednesday, anticipated to last for two days. This conference is a pivotal event at the end of each year, focusing on establishing the economic agenda for 2025. Earlier, top leadership indicated more forceful stimulus amid the threat of a potential trade war with the US. Should the Central Economic Work Conference convey a significantly positive outlook, risk assets are likely to maintain their upward trajectory.

The conference typically comprises two main components: evaluating the economic performance of the current year and formulating policy guidance for the upcoming year. It outlines key priorities for economic work that are expected to become focal themes for capital market activity in the year ahead. Additionally, investors will closely monitor which sectors of the economy will be prioritized, particularly regarding any enhanced focus or new strategies aimed at bolstering domestic demand and revitalizing the property market.

The meeting will likely discuss setting a growl goal for 2025, although specific figures will only be announced in March during the annual meeting of the legislature. However, the possibility of hints regarding economic objectives for the upcoming year being revealed during this conference cannot be ruled out. If the conference indicates a GDP target for 2025 that is not significantly different from that of 2024, or suggests that there is still substantial room to increase the deficit ratio, it could further bolster bullish sentiment in the market, potentially setting the stage for a "year-end rally."

Despite a rapid decline in the short-term market following the Politburo meeting, the gains were markedly lower than the rally observed in Chinese assets in September. Nevertheless, it is crucial not to overlook that the statements made during the Politburo meeting conveyed the most robust stimulus signals seen in a decade. For the first time in fourteen years, the term "moderately accommodative" monetary policy has been reintroduced, signaling a significant shift in the policy landscape.

The last instance of a similar wording in monetary policy emerged during the 2008 Global Financial Crisis (GFC), when China implemented its 4 trillion yuan fiscal stimulus plan and injected liquidity into the economy through significant cuts in reserve requirements, interest rates, and other policy tools. This historical context serves as a valuable reference point for understanding the current policy shift.

During the early stages of the crisis, both the Hang Seng Index and the FTSE A50 Index experienced substantial declines. However, thanks to the aggressive accommodative monetary policy and strong fiscal stimulus, the market rebounded sharply, ultimately doubling in value within less than a year.

The specific targets and implementation pace of subsequent policies will be crucial factors influencing market trends, with monetary policy expected to play a leading role in signaling action. Previously, Pan Gongsheng, the Governor of the People's Bank of China, indicated the potential for a 50 basis point cut in reserve requirements. Additionally, the scale of unconventional tools, such as open market operations and direct purchases of Chinese government bonds (CGB), may be expanded to inject medium- to long-term liquidity into the market.

It is important to note that the term "extraordinary" in relation to counter-cyclical adjustments, as introduced during the Politburo meeting, suggests that the extent of China's policy easing may be unprecedented. From our current perspective, this could represent a new starting point for Chinese assets. As we look ahead to the upcoming Central Economic Work Conference, we will closely monitor where the investment opportunities may emerge in the coming year.