China Stocks Rally: Hang Seng Hits 2023 High—What's Driving the Surge?

China stocks rallied on Friday, recouping some of Thursday's losses, with the Hang Seng Index closing 2.8% higher overnight in Asia. The gain has put the index on track for its highest closing since January 2023, according to Deutsche Bank analysts.

Meanwhile, a rally in Chinese stocks gained momentum, driven by an economic stimulus package aimed at revitalizing the struggling economy. As the country's weeklong national holiday concludes, market focus is expected to shift towards whether policymakers will supplement these stimulus measures with further fiscal actions.

The positive market sentiments began with the People's Bank of China's announcement of a 50 basis-point cut to the reserve requirement ratio, along with a 0.2 percentage point reduction in its benchmark policy rate.

Additionally, the central bank lowered rates on existing mortgages by 0.5 percentage points and reduced the minimum down payment on second homes from 25% to 15%. Governor Pan Gongsheng also unveiled plans to boost the stock market by providing liquidity support to institutional investors.

As China's weeklong national holiday ends, investors are keen to see whether policymakers will supplement the recent economic stimulus package with additional fiscal measures. Citi analysts Xiangrong Yu and Xinyu Ji note that the first week back from the holiday and the high-level NPC policy meeting scheduled for late October provide two key opportunities for fiscal policy action.

Citi expects budget revisions to introduce a CNY 2 trillion stimulus and an additional CNY 1 trillion special government bond issuance to finance bank recapitalization through the rest of 2024.

Source: Barron's, Benzinga, moomoo