China's Stimulus Fuels Weeks of Stock Surge—Is More Growth on the Horizon?

Chinese shares have surged since late September, fueled by a series of economic, financial, and market-support measures that have boosted investor confidence. The Hang Seng China Enterprises Index, which includes Chinese companies listed in Hong Kong, has soared over 35% in the past month, making it the top performer among more than 90 global equity benchmarks tracked by Bloomberg. The MSCI China Index also climbed 24% in September, marking its largest monthly gain since November 2022.

Beijing's recent announcements of economic support have bolstered the broader stock market, with stimulus measures including interest rate cuts, reductions in banks' reserve requirements, liquidity support worth billions of dollars for the stock market, and a commitment to halt the prolonged decline in property prices, such as a 50 basis-point cut to the reserve requirement ratio in the near term, a 0.2 percentage point reduction in the 7-day repo rate, and a potential 0.2-0.25% cut to the loan prime rate.

Investor sentiment is further buoyed by rising expectations that Beijing will introduce additional fiscal policies and support measures to strengthen the economy. While there have been reports of such plans, the Ministry of Finance has not yet announced any major growth-support initiatives.

Goldman Sachs Group Inc. has upgraded its outlook on Chinese stocks to overweight, suggesting that equity indexes could climb an additional 15-20% if authorities follow through on policy measures. Recent stimulus announcements from Beijing have signaled to the market that policymakers are now more committed to taking adequate action to mitigate downside growth risks, according to strategists led by Tim Moe in a note dated October 5.

Shaun Rein, founder of China Market Research, expects that Chinese equities have "1-3 weeks of upside left." However, he noted that it's common for prices to dip as "investors take profits by closing positions." Since the rally has largely been sentiment-driven, Rein anticipates increased volatility, with investors hesitant to be "the last to enter but also the last to exit."

HSBC Global Private Banking remains cautious about China's recent measures, doubting their adequacy to reverse the nation's slowing long-term growth. According to Cheuk Wan Fan, chief investment officer for Asia, more substantial fiscal easing is required to sustain recovery momentum and achieve the 5% GDP growth target for 2024. As a result, the bank maintains a neutral stance on mainland China and Hong Kong equities, anticipating a deceleration in China's GDP growth from 4.9% in 2024 to 4.5% in 2025.

For investors interested in the recent surge of Chinese assets but unfamiliar with how to directly access the A-share market, there are a few direct or indirect ways to participate in this bull market. Here are some options:

Source: Yahoo Finance, CNBC, Bloomberg