Share prices surged as trading resumed on Tuesday in mainland China following a weeklong national holiday, as investors rushed in to make bullish bets that Beijing’s leaders are committed to providing stimulus for the faltering Chinese economy.
Before the break, the Chinese government jolted stock markets sharply higher with a package of measures aimed at halting the cycle of falling real estate prices and weakening consumer confidence.
The central bank and other top financial agencies announced on Sept. 24 that they were cutting interest rates, reducing the minimum down payments for mortgages, and encouraging banks to lend more money for investors to buy shares.
Two days later, the ruling Politburo issued an uncommonly blunt call for more to be done to help the economy. Several municipal governments soon followed by trimming or dismantling their restrictions on real estate purchases as a way to stabilize the housing market in their cities.
The CSI 300, an index of large companies traded in Shanghai and Shenzhen, soared 25 percent in heavy trading over the five sessions before the holiday. Market operators tested their systems on Monday in anticipation of another influx of activity.
The CSI 300 climbed about 10 percent in early trading on Tuesday.
Retail investors in China have rushed into the markets, flocking to online trading platforms like Snowball and Tiger Brokers. The craze for Chinese stocks has also spread to investors outside the country who feared they were missing out on the biggest rally in decades.
Tay Chi Keng, an independent investor in Singapore who runs a YouTube channel about investing, said his inbox has filled with requests for advice.
“People are thinking of it like, ‘If I don’t have a stake in the Chinese stock market, that means I’m losing out,’ and everything has caught like wildfire,” Mr. Tay said.
Mr. Tay, 26, has held shares in multiple Chinese companies through the recent down years. He said he forces himself to consider any moves for at least 48 hours. But he was nearly tempted to abandon his discipline, he said, to invest in the Chinese liquor company Kweichow Moutai, whose products can fetch thousands of dollars a bottle and whose shares rose nearly 40 percent in the week before the holiday shutdown.
“This rally is just mind boggling,” he said.
China’s stock markets were among the worst performing in the world before the recent turnabout. Since early 2021, the CSI 300 had lost almost half its value, while the Hang Seng in Hong Kong dropped by more than half. After the recent rally, the CSI 300 is 17 percent higher this year and the Hang Seng over 35 percent.
China’s economy has endured three years of falling real estate prices, and a big question is whether China’s leaders will follow through with further economic stimulus measures.
The tipping point that prompted the Chinese leadership to act at the end of September remains a mystery. Economic data through the summer was weak but not calamitous. While the government is not scheduled to release detailed statistics for September until Oct. 18, a survey of Chinese businesses by the China Beige Book, an economic research group, found that little had changed in the past month.
“After Beijing announced it would provide its most aggressive policy support in years, many analysts took to assuming that only an economy teetering on cataclysm would’ve kicked policymakers into action,” said Leland Miller, the consultancy’s chief executive. “It’s a compelling narrative, but it’s wrong.”
The Politburo, the 24 men who run the Communist Party, usually does a broad, quarterly review of economic policy at the end of October. So investors were surprised when the Politburo called for immediate action at a meeting at the end of September.
The abrupt change of tack was all the more unexpected because of the lack of urgency evident just two months earlier, when the leadership met to review the state of growth. Back then, a Politburo statement said the economy “continues on an upturn and is trending positively.”
The leaders noted challenges, including slack domestic demand. But they focused on a favorite theme of China’s top leader, Xi Jinping — “new quality productive forces,” such as electric vehicles — as a cure.
In mid-July, the party’s Central Committee also appeared unruffled when it held a special meeting on long-term economic goals, a so-called Third Plenum that occurs roughly every five years.
Some overseas economists have suggested that China’s recent measures could mark the beginning of a long-delayed effort to increase consumer spending and lay a more sustainable base for economic growth. But there are lingering signs that the country’s leadership is still committed to building ever more factories, despite signs of chronic overcapacity and falling prices in many industries.
“Manufacturing industry is the foundation of the nation and the bedrock of a strong country,” Mr. Xi said in a letter on Sept. 28 to workers of China First Heavy Industries, a state-owned conglomerate that makes smelting and industrial equipment.
Underlying many of the country’s economic difficulties is the steep slide in prices for apartments. During a boom that peaked in 2021, middle-class families put their savings into buying apartments, often borrowing to do so. Many bought second and third apartments as investments. Real estate came to represent 60 to 80 percent of household assets.
Prices of existing homes have been falling 10 percent a year and some economists have suggested that the decline could accelerate to 15 percent next year unless more is done. The Communist Party Politburo recognized the problem at its session late last month. It directed officials to stabilize the housing market, strictly control any uptick in construction and expand loans for officially approved projects..
The danger for China lies in a possible repeat of a stock market debacle it experienced in 2015.
Faced with weakness in real estate prices, the Chinese government engineered a rally that saw the CSI 300 more than double in less than seven months. Millions of Chinese rushed to open brokerage accounts and borrowed heavily to place big bets on shares.
Many then lost most or all of their savings when the index shed most of its gains in during the summer of 2015. Before that sell-off, Chinese official media had encouraged investors to buy.
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