Deflation, sluggish consumption, sluggish growth: the world’s second largest economy is facing many difficulties. But Beijing has just taken the bull by the horns, and the stock market is applauding.
The Stock Market has the gift of surprising commentators. On September 12, a dispatch from the Bloomberg agency discussing the CSI 300, the major stock market index for mainland Chinese stocks, was headlined as follows: “Massive selling pushes benchmark index to lowest level since 2019». The CSI 300 had just “broken” 3,200 points, very far from the record close to 6,000 points from 2021.
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Change of foot on October 2: “Hong Kong brokers overwhelmed by a “once in a century” stock market frenzy indicates Bloomberg while the 4,000 points have just been taken back.
In 20 days, the Chinese stock market rose 30%
In 20 days, the major stock indices of the world’s second largest economy have recovered by 30% : + 27% on the lowest for the CSI 300 in Shenzhen, and + 32% for the Hong Kong Hang Seng, rich in technological stocks such as BATX. Why is this movement so violent? Because until then, no one wanted Chinese stocks. According to Goldman Sachs, the exposure of institutional investors and hedge funds had fallenat the lowest level in decades».
What is causing what looks like a trend reversal? The political and monetary authorities came up with stimulus measures which, taken together, ended up generating optimism. Everything goes : the People’s Bank of China has vigorously lowered its key rates in order to encourage credit in general. Against the endless real estate crisis, there is talk of housing buyback programs, mortgage loans at subsidized rates for households, and the lifting of regulatory restrictions.
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For the stock market at half mast, more than $100 billion in liquidity will take the form of cheap loans granted, for example to insurers, to buy shares. Listed companies are encouraged to buy back their own securities. And we forget!
And now ?
Everything is being done to restore the morale of the Chinese consumer, so important for the European luxury giants whose shares have also rebounded. And it’s probably not over yet, since after a Politburo meeting, a fiscal stimulus could follow.
Should we be enthusiastic? The effect of these measures will be neither certain nor immediate. The fact remains that China, a sick man in the world economy, has finally taken the bull by the horns. And that’s good news for growth.
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