Chinese stocks are enjoying their best rally in years, according to investor sentiment rose afterwards Officials unveiled new monetary stimulus measures and promised to do more to support growth in the world’s second largest economy.
Still, mainland China stock markets have yet to fully participate. Markets in Shanghai and Shenzhen have been closed since October 1 as China celebrated the week-long Golden Week national holiday.
Chinese markets reopen on Tuesday, allowing Chinese investors to take part in the market rally again. And shortly after the opening, a panel of senior officials led by the National Development Reform Commission will hold a press conference to brief reporters on the implementation of the stimulus measures, according to a observe from the state council. The panel is chaired by Commission Chairman Zheng Shanjie.
Hong Kong’s Hang Seng Index has risen 21.5% since September 24, when the People’s Bank of China unveiled its stimulus measures. Chinese stocks listed in the US have also risen sharply; Alibaba is up 24.6%, while Pinduoduo and Temu-owned PDD Holdings is up 35.6% in the same period.
“Local investor participation following the National Day holiday is critical,” said Daniel Lam, head of equity strategy at the CIO Office of Standard Chartered Bank Wealth Management, in a Standard Chartered report released on Monday.
“Overall, valuation levels are still low and Chinese stocks still offer a discount of around 19% to Asian (ex-Japan) stocks,” he wrote.
Chinese markets still had a few days of trading left before going into pause. The CSI 300, which tracks companies listed in Shanghai and Shenzhen, has risen 24% since the stimulus package was announced.
Earnings surprises and further economic stimulus could keep the rally going, predicts Sonija Li, head of retail research at Maybank’s MIB Securities. Several Chinese companies are set to release earnings reports this month. And Li points out that there could still be upside, as the price-to-earnings ratios for both the Hang Seng Index and the Shanghai Composite Index are still below their respective five-year averages even after the recent rally.
Stimulus measures in Beijing
Investors may now be more confident about the Chinese economy following the announcement from the country’s central bank Reduce interest rates and the Minimum reserve ratio– the amount of cash that banks must hold in reserves – in the last week of September.
Soon after, three major Chinese cities reduced restrictions on real estate transactions after the central government made comments on the need to stabilize the real estate market. A years-long real estate downturn has helped drag down China’s economy.
Chinese media suggested over the weekend that these measures are already bearing fruit. The global times, a state-sponsored sales outlet, he said China’s real estate market showed a “positive change” over the National Day holiday, driven by higher local inquiries and increased promotional activities.
Still, investors could change their minds about China if Beijing doesn’t come up with further stimulus measures.
More fiscal support is needed for housing and social spending, Morgan Stanley analysts wrote in a research note on Sunday.
The stock market could be vulnerable to setbacks “without further positive catalysts,” a report from Bank of America warned on Monday.