Chinese stocks are on the rise. Hong Kong’s Hang Seng Index has risen 13.8% since September 25. The CSI 300, which tracks stocks traded on the Shenzhen and Shanghai stock exchanges, rose 24% before Chinese markets closed for the national holiday.
It’s that biggest rally for Chinese stocks since 2008, according to the Chinese central government unleashed Stimulus measures and political commitments are intended to both stimulate China’s stumbling economy after the pandemic and stabilize a real estate market that has been in crisis for years. Beijing’s moves follow months of warnings from analysts and economists that the country needs far more policy support to restart the economy and meet the official 5% growth target.
China’s political turning point could go down in the “market economy history books,” says Ray Dalio, founder of Bridgewater Associates, one of the world’s largest hedge funds. wrote in a LinkedIn post published on Tuesday.
The long-time China bull compared Beijing’s move to that of then-European Central Bank President Mario Draghi in 2012 promise to do “whatever it takes” to resolve the region’s sovereign debt problems, widely seen as a turning point in the crisis.
Still, Dalio warned that China still needs to do much more to fully address the country’s economic problems.
About two weeks ago, Dalio warned It said China’s situation was “at least as serious as Japan’s situation from 1990 onwards” and noted that the country needed a “very complicated and politically explosive” debt restructuring.
Dalio reiterated that warning on Tuesday, saying China is now at a “fork in the road” and will either opt for “nice deleveraging” or allow the debt crisis to lead to Japanese-style economic misery.
According to the Bridgewater founder, China has an advantage: Most of China’s bad debts are denominated in yuan, with both debtors and creditors often being Chinese citizens. But even then, debt restructuring will be delicate and politically explosive because it will have enormous effects on people’s prosperity.
Political moves
Since September 24, Beijing has sharply cut interest rates, lowered the reserve ratio – the amount of cash banks must hold as reserves – and made strong statements about stabilizing the real estate market. Three Chinese cities have responded by making it easier for people to buy homes, and six major Chinese banks are also adjusting mortgage rates on existing home loans.
At a Politburo meeting on Thursday, Chinese officials admitted that “new situations and problems have emerged in the current economic situation,” raising investors’ hopes for more policy support.
Hong Kong’s Hang Seng Index rose 6.2% on Wednesday, with some Chinese developers posting gains of over 15%. Markets in mainland China are closed for the week-long Golden Week national holiday.