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China-Linked Stocks Surge Amid Strong Policy Stimulus. Wall Street: This Time Is Different!

Analysts Notebook joined discussion · Sep 27 07:29

On Thursday, Chinese tech stocks experienced another substantial rally, as the Chinese Golden Dragon Index $NASDAQ Golden Dragon China (.HXC.US)$ soared nearly 11% for the day, marking its largest increase since 2022. Since the beginning of this week, the Chinese Golden Dragon Index has cumulatively risen by 19.18%.

During Friday's trading session in Asia-Pacific, the $CSI 300 Index (000300.SH)$ climbed by 4.47%, culminating in a weekly gain of 15.7%. Concurrently, Hong Kong's $Hang Seng Index (800000.HK)$ rose by 3.55%, achieving a total weekly increase of 13%.

China-Linked Stocks Surge Amid Strong Policy Stimulus. Wall Street: This Time Is Different!

Significant Surge in China-Linked Stocks

The sectors of internet, consumer goods, and real estate witnessed prominent gains. Notably, the Chinese video streaming platform $Bilibili (BILI.US)$ soared by an impressive 73.29% in the past five trading days, while e-commerce platforms $JD.com (JD.US)$ and $PDD Holdings (PDD.US)$ also experienced substantial increases, rising 32.19% and 29.43%, respectively. Additionally, the real estate services company $KE Holdings (BEKE.US)$ saw a gain of 29.37%.

Amid expectations that Chinese policies will stimulate industrial demand, prices for metals and mining stocks have experienced a significant uptick. $Silver Futures Current Contract (SIcurrent.US)$ has reached its highest price in nearly 12 years, while most base metals traded in London have seen increases. Specifically, spot copper prices in London rose by 4.7% over the week, with $Copper Futures Current Contract (HGcurrent.US)$ climbing over 2.82% on Thursday, surpassing the $10,000 mark. Additionally, Australian mining stocks have surged by 9.54% this week, marking the best weekly performance since April 2016.

As a leading mining nation, Australian Treasurer Jim Chalmers praised China's latest stimulus measures as a "really welcome development" for both Australia and the global economy.

Like a lot of people around the world we have been concerned about the softer conditions here in the Chinese economy. Any efforts to boost growth and support activity here is a welcome one.

The recent stimulus measures in China also had a noticeable impact on the luxury goods sector. As numerous Chinese citizens' wealth is tied up in the real estate market, creating significant drag on consumer spending, the introduction of these stimulus policies has helped alleviate market concerns. Notably, on Thursday, major luxury brands including $LVMH Moet Hennessy Louis Vuitton (LVMUY.US)$, Kering Group $KERING UNSPON ADR EA REPR 0.1 ORD EUR0.00 (PPRUY.US)$, $Hermes International SA (HESAY.US)$, and $Estee Lauder (EL.US)$ saw their stock prices surge by more than 10%. Additionally, in the Hong Kong stock market, casino stocks have collectively shown an upward trend.

What Are the Highlights of the New Policy Package?

Following the PBOC's announcement of three significant monetary policy measures on Tuesday, an unusual Politburo meeting to discuss the economic situation and policies was convened on Thursday. This meeting, typically scheduled for April, July, and December, underscores the urgency of the current policy needs. The key measures discussed at the meeting, which have significantly boosted market confidence, include:

Monetary Policy: The Politburo meeting shifted away from the usual prudent and precise rhetoric, instead emphasizing "substantial interest rate cuts."

Fiscal Policy: "Maintaining necessary fiscal expenditures" was highlighted, suggesting that incremental policies may be forthcoming. Possible measures include alleviating local fiscal deficits through local bonds or special sovereign bonds, and bank recapitalizations. According to Reuters, China plans to issue 2 trillion yuan ($284.43 billion) of special sovereign bonds this year.

Real Estate Sector: For the closely watched real estate sector, the latest statement from the meeting was encouraging: "Promoting the stabilization and recovery of the real estate market." This has provided investors with a renewed sense of confidence.

Additionally, on Thursday, the China Securities Regulatory Commission (CSRC) released the "Guidance on Promoting the Entry of Medium and Long-Term Funds into the Market." This policy focuses on enhancing regulatory inclusiveness for equity investments by medium and long-term funds and fully implementing assessment cycles of three years or longer. This initiative is poised to support the sustainable development of China's stock market.

Wall Street Analysts: This Time Is Different!

Previously, economists at Wall Street banks, including Goldman Sachs, reduced their full-year GDP forecasts for China following dismal economic data in August. Now, these economists view the latest announcement as a significant shift from the authorities' earlier fragmented approach to economic stimulation.

Scott Rubner, managing director for global markets and tactical specialist at Goldman Sachs, has observed a growing sense of FOMO (Fear of Missing Out) among domestic investors in China. Over the past 48 hours, Rubner has engaged in more China-related Zoom calls than he had throughout the earlier part of the year. Goldman Sachs' prime brokerage business has seen short-term traders buying Chinese stocks for eight consecutive days. This Tuesday, the net purchases of Chinese stocks in the prime brokerage division reached the second highest in a decade, with almost all purchases being bullish. "I really think this time is different for China," Rubner wrote in a note to clients on Thursday.

Morgan Stanley, along with numerous other China observers, is increasingly adopting a bullish stance on the Chinese market. Strategist Laura Wang and her colleagues anticipate a further 10% short-term increase in the CSI 300 Index. This shift in perspective comes just days after the Wall Street bank reversed its previous preference for onshore stocks over offshore counterparts, citing an absence of supportive factors, such as state buying.

HSBC noted that the frequency and magnitude of recent policy rollouts in the market have surpassed their expectations.