Last week witnessed a remarkable surge in Chinese equities, fueled by recent supportive policy measures. Both onshore and offshore markets experienced a powerful rally. The Shanghai Composite Index and Hang Seng Index surged over +20%, marking their most significant weekly jump in ten years.
Source: Google Finance, 27 September 2024
What’s behind the market rally?
The rally’s primary catalyst is the announcement of significant monetary and fiscal policies aimed at bolstering the economy, a development eagerly awaited by investors for months.
Two key events unfolded this week:
- PBOC Easing Package: On September 24, the People’s Bank of China(PBOC) , the central bank of China, introduced measures to stimulate the economy and bolster the stock markets. These include interest rate cuts, reductions in the Banks’ Reserve Requirement Ratio (RRR), and adjustments to mortgage terms to aid the property market. Additionally, RMB 500 billion will be provided to brokerage houses, mutual funds, and insurance companies to buy mainland-listed stocks.
- Politburo Meeting: On September 26, China’s top leaders convened to discuss the economy and plan further actions. They acknowledged new economic challenges, promised more stimulus, and reiterated their commitment to meeting the year’s growth targets. The government plans to enhance fiscal and monetary policies, stabilise the property market, support the stock market, help struggling companies, and improve consumption and employment.
What does this mean for investors?
- China policy makers shift focus. The Politburo meeting, coupled with the PBOC easing package, highlighted that top leaders are increasingly concerned about growth headwinds and feel a heightened urgency for policy easing. More monetary and fiscal policy support is expected to be rolled out in the coming months.
- Chinese equities have potential for further gains. Chinese equities offer attractive valuations, and companies (particularly in the internet sector) are buying back shares. This, along with light positioning by global investors, suggests further upside potential for Chinese stocks.
- Be aware of risks. Chinese stocks have historically been volatile, often experiencing rapid surges followed by drastic falls (e.g., 2007, 2015, and 2021). The effectiveness of these policies on the economy remains to be seen. In addition, the US election could also pose a potential geopolitical risk. It’s essential to be mindful of your portfolio allocation and manage risk accordingly.
Upcoming key macro catalysts for China markets
Source: Government websites, Data compiled by Goldman Sachs Global Investment Research
How to invest in Chinese equities using Syfe?
You can invest in Chinese equities through Managed Portfolios.
- China Growth Portfolio: Our China Growth portfolio offers tailored exposure to China’s new economy. The portfolio focuses on China’s new economy sectors – including innovation and technology, healthcare, and clean tech. You can also get exposure to China A-shares (onshore market), which can benefit directly from policy support.
Allocation for China Growth Portfolio
Source: Syfe, as of 30 August 2024
This article is for informational purposes only and should not be viewed as financial advice. It is not meant to market any specific investment, or offer or recommend the purchase or sale of any specific security. All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone.Past returns are not a guarantee for future performance. Investors should consider his/her own circumstances. The information or advertisement contained herein does not constitute an offer, any solicitation, invitation or recommendation to engage in any investment activities.
