An increase of more than 30% in two weeks: the Chinese stock market has literally skyrocketed. According to various experts, it could continue to rally. But this increase suffered a first setback this Wednesday.
After years of scarcity, the tide finally seems to be turning on the Shanghai Stock Exchange. Its flagship index, the CSI 300, defies gravity and is up more than 30% since September 23 (and until this Tuesday), an increase of more than 25% since the start of the year. The driving force behind these increases are the surprise announcements of a major public aid program to revive the economy, including reductions in interest rates, reductions in reserve obligations and the injection of liquidity. . Such announcements have been expected since the end of the pandemic.
Another driver of this increase is that the Chinese market was repudiated and underinvested by investors in recent years. This now allows him to soar.
And then?
This rally could indeed continue, observers believe. Goldman Sachs, for example, sees a potential increase of 15 to 20%. The bank cites several reasons for this estimate.
- The first is that there is still room for improvement in terms of valuations. Despite a recent rise, they have not yet reached their average of the last five years, namely 12.1 times earnings.
- Then, the risks for the Chinese market also decreased with these announcements.
- These various aids should help to increase business turnover. The bank also expects that the easing of monetary policy will add 40 basis points to GDP growth.
- Ultimately, China occupies little space in investors’ portfolios, which means that demand can still increase.
The condition for all this is of course that Beijing honors its promises. And while these announcements are positive for stocks, it would still be too early to declare that a structural bull market has begun. We must also keep in mind that there remain risks for the Chinese economy, such as low consumer spending or the indebted real estate market.
Other help to come?
Goldman Sachs isn’t the only bank that sees upside potential for Chinese stocks. Société Générale is also optimistic and suggests an increase of 15% in the short term. This is particularly because of a new aid package, even larger and representing 3,000 billion yuan (nearly 400 billion euros), for 2025. It should be announced at the end of October. Here too, the bank expects this aid to have a direct impact on GDP (which would show growth of 5% in 2025, compared to a previous estimate of 4.5%) and in business turnover ( which should increase by 15% on average). Societe Generale also indicates that China is “undervalued”.
But there can also be false hopes in this saga of aid announcements. This Tuesday for example, the market was expecting new announcements for the semiconductor sector (and the CSI 300 was up more than 10% at the opening). But the Commission in question did not ultimately did not give details on additional aid. The index fell to close up 6%. But this Wednesday, it even suffered its first setback in this series of green closes: it was down 7% over the day (which means it was up 16% over the year). Investors are starting to wonder if the hope is too great and if the aid will really succeed in relaunching the economic machine.
It remains to be seen if this is a temporary setback or if the blow will fall completely.
