How Long Can US-Listed Chinese Stocks Keep Climbing Under Stimulus Policies? Key Stocks to Watch

Chinese equities rallied last week on strong policy signals. The CSI 300 Index surged more than 15%, marking its largest weekly gain since 2008. On Monday, the last trading session before the holiday, the index soared 8.5%, with a historic trading volume, and only eight stocks declined.

Despite the recent rally, NIO, XPeng, TAL Education Group, Baidu Inc., and Pinduoduo remain in negative territory for the year.

On September 24, the People’s Bank of China announced an interest rate cut at a news conference. On September 26, the Politburo unveiled a fiscal spending plan aimed at stimulating consumption, controlling local government debt, and stabilizing the troubled real estate market. On Sunday, Chinese authorities introduced several measures to boost the property sector, including lowering existing mortgage rates and reducing the minimum down payment ratio.

A report from Huatai Securities noted that the Politburo meeting provided clearer guidance, suggesting that specific follow-up policies, especially those related to fiscal and consumption, may be rolled out soon. Additionally, it reaffirmed the stance on further monetary easing, indicating room for more rate cuts.

Kevin Liu, Chief Strategist at CICC, wrote in a Monday report that the market's positive reaction stemmed from last week's policy adjustments and statements. These changes directly encourage the private sector to leverage up in equities and real estate, while placing a greater emphasis on improving livelihoods and consumption, signaling a shift from previous approaches.

Chinese assets are heating up rapidly amid unprecedented policy stimulus, raising market concerns about the sustainability of the current rally.

Chen Guo, chief strategist at China Securities, suggests this rally is not just a mere bounce-back from oversold levels but a genuine reversal. He attributes this to a rare confluence of factors: upward revisions in earnings expectations, declining risk-free rates, and a rise in risk appetite.

The core element, Chen argues, is how effectively the entire society, including households and the private sector, can be incentivized and mobilized. The degree of this success will determine how high and far the "reassessment of confidence in Chinese asset prices" can go.

Following the Chinese government's comprehensive stimulus measures, investors, including hedge fund legend David Tepper, have expressed optimism about Chinese stocks. Tepper said last week he is buying more of "everything" related to China.

"Even with the recent moves, they're like on a flat-line low compared to where they have been in the past. And you're sitting there with single multiple PEs, with double-digit growth rates for the big stocks that trade over here," Tepper said in an interview with CNBC on Thursday.

In a report led by JPMorgan chief China equity strategist Wendy Liu, the team wrote on Friday: "Our focus here and over the next several quarters will be on finding quality businesses that trade at undemanding valuations."

Rupal Agarwal, director and Asia quantitative strategist at Bernstein, stated in a report on Friday: "We believe it is a good time to add back China exposure." She added, "We would wait to see clear signs of inflection on property/consumer sentiment and earnings growth to become more positive over the medium-term. For now, we believe tactically, the rally has legs."

David Chao, strategist at Invesco Asset Management, remarked: "I think the euphoric surge that we saw last week in China markets could turn into something more concrete and sustainable because there appears to be a complete policy shift that could finally address the cyclical headwinds of the past 3 years."