China’s stock rally may see another 20 per cent upside, as fiscal pivot boosts sentiments

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US money manager Invesco, citing hopes of higher government spending, predicts a 20 per cent gain – on top of this week’s rise

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Construction cranes are seen near the central business district of Beijing on August 8, 2024. Photo: AP

Zhang Shidongin Shanghai

Published: 4:00pm, 27 Sep 2024Updated: 4:43pm, 27 Sep 2024

The possibility of expansionary fiscal policy in mainland China is adding fuel to a stock rally that is already cruising along thanks to monetary easing, as investors see Beijing making an all-out pivot to revive economic growth.

Gains in stocks in Hong Kong and the mainland have accelerated after a readout from a surprise Politburo meeting chaired by party chief Xi Jinping on Thursday, pledged to ramp up countercyclical fiscal policies. The rhetoric has fanned expectations among investors that the government will spend more to boost domestic demand, which has been crippled by declining home prices and a deteriorating job market.

US money manager Invesco, citing expectations of fiscal stimulus, predicts another 20 per cent gain in stocks from the current level – even after the Hang Seng Index technically entered a bull market with a rally of more than 20 per cent from an August low. The CSI 300 Index jumped 15.8 per cent this week, the best performance for the mainland’s benchmark since its inception in November 2008.

“I take the messages from this meeting as a positive step to address the economic challenges that China faces,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management in Hong Kong. “The fiscal policy in China has been procyclical so far this year. It will likely turn countercyclical after this Politburo meeting, though the magnitude is unclear yet.”

The hint at expansionary fiscal policy adds to the monetary easing unveiled by the central bank earlier this week, which introduced 800 billion yuan (US$114 billion) in funding facilities for stock purchases and pledged to cut policy and mortgage rates. Investors see a more proactive fiscal policy as crucial to aid a fragile recovery in China’s growth, as consumer confidence is hovering near a record low after home prices plunged and the unemployment rate among young people soared.