By Steve Goldstein
Published: Sept. 30, 2024 at 3:58 a.m. ET
Chinese stocks experienced a remarkable surge on Monday, driven by optimism that policymakers will combine monetary support with fiscal measures. The Shanghai Composite Index jumped 8% on the heels of a 13% rise last week, while the Hang Seng Index added 2%.
JD.com soared nearly 10%, rebounding after Walmart divested its stake last month, and Li Auto rose by 8%.
Morgan Stanley had predicted a further 10% rally in the near term, anticipating a supplementary budget between 1 trillion and 2 trillion yuan next month, along with rate cuts and relaxed housing market regulations. They noted that recent monetary and property policy measures might not suffice given the current deleveraging cycle. To effectively combat deflation, they argue for more extensive government intervention, proposing a stimulus package exceeding $1 trillion over two years.
Citi economists expressed uncertainty about a budget revision but highlighted a potential 3.3 trillion yuan in available funding. Meanwhile, BCA Research upgraded their outlook on emerging market equities, suggesting a strategy of buying Chinese stocks while shorting Indian stocks, given the depressed valuations of Chinese equities.
UBS reported that Chinese stocks are trading at a 30% discount compared to other emerging markets, with profitability only slightly lower at 2%
SHCOMP Morgan Stanley late Sunday had forecast at least another 10% stock-market rally in the near term. They expect a supplementary budget between 1 trillion ($140 million) and 2 trillion yuan next month as well as more rate cuts and looser housing market rules.
“Over the past week, the key stimulus has come on the monetary and property fronts, which we believe will be insufficient given their weak policy multiplier amid the prevailing deleveraging cycle,” they said. “In our view, to decisively exit deflation, more central government leverage is needed to expand the housing buyback program and support social welfare reforms, and the optimal stimulus size should be >US$1trn over a two-year horizon.
However, the initial pace and size of the policy pivot will likely remain modest,” they added.
0 Comments