Chinese equities rallied last week on strong policy signals. The CSI 300 Index surged more than 15%, marking its largest weekly gain since 2008. On Monday, the last trading session before the holiday, the index soared 8.5%, with a historic trading volume, and only eight stocks declined.
The$NASDAQ Golden Dragon China (.HXC.US)$Index jumped over 23% over five trading days. US-listed Chinese companies surged, with consumer discretionary stocks leading the gains, many exceeding 20%.
As of 4:11 a.m. ET, popular Chinese stocks continue to surge in pre-market trading. NIO is up over 12%, KE Holdings has gained more than 11%, TAL Education and$MINISO (MNSO.US)$Group have both risen over 10%, while XPeng and Li Auto are each up more than 7%.
Policy Review
On September 24, the People’s Bank of China announced an interest rate cut at a news conference. On September 26, the Politburo unveiled a fiscal spending plan aimed at stimulating consumption, controlling local government debt, and stabilizing the troubled real estate market. On Sunday, Chinese authorities introduced several measures to boost the property sector, including lowering existing mortgage rates and reducing the minimum down payment ratio.
A report from Huatai Securities noted that the Politburo meeting provided clearer guidance, suggesting that specific follow-up policies, especially those related to fiscal and consumption, may be rolled out soon. Additionally, it reaffirmed the stance on further monetary easing, indicating room for more rate cuts.
Kevin Liu, Chief Strategist at CICC, wrote in a Monday report that the market's positive reaction stemmed from last week's policy adjustments and statements.These changes directly encourage the private sector to leverage up in equities and real estate, while placing a greater emphasis on improving livelihoods and consumption, signaling a shift from previous approaches.
Is It Still a Buy?
Chinese assets are heating up rapidly amid unprecedented policy stimulus, raising market concerns about the sustainability of the current rally.
Chen Guo, chief strategist at China Securities, suggeststhis rally is not just a mere bounce-back from oversold levels but a genuine reversal.He attributes this to a rare confluence of factors: upward revisions in earnings expectations, declining risk-free rates, and a rise in risk appetite.
The core element,Chen argues,is how effectively the entire society, including households and the private sector, can be incentivized and mobilized. The degree of this success will determine how high and far the "reassessment of confidence in Chinese asset prices" can go.
Following the Chinese government's comprehensive stimulus measures, investors, including hedge fund legend David Tepper, have expressed optimism about Chinese stocks. Tepper said last week he is buying more of "everything" related to China.
"Even with the recent moves, they're like on a flat-line low compared to where they have been in the past.And you're sitting there with single multiple PEs, with double-digit growth rates for the big stocks that trade over here," Tepper said in an interview with CNBC on Thursday.
Michael Burry of Scion Asset Management has been heavily buying Chinese stocks since the fourth quarter of 2022. According to 13F filings, Scion manages about $200 million in assets, with roughly half invested in Chinese tech giants. Burry has allocated 12% of his portfolio to$Baidu (BIDU.US)$and another 12% to$JD.com (JD.US)$. As of June 30, Burry has invested approximately46%of his portfolio in these three Chinese stocks.
In a report led by JPMorgan chief China equity strategist Wendy Liu, the team wrote on Friday: "Our focus here and over the next several quarters will be onfinding quality businesses that trade at undemanding valuations."
Rupal Agarwal, director and Asia quantitative strategist at Bernstein, stated in a report on Friday: "We believe it is a good time to add back China exposure." She added, "We would wait to see clear signs of inflection on property/consumer sentiment and earnings growth to become more positive over the medium-term. For now, we believe tactically, the rally has legs."
David Chao, strategist at Invesco Asset Management, remarked: "I think the euphoric surge that we saw last week inChina markets could turn into something more concrete and sustainable because there appears to be a complete policy shift that could finally address the cyclical headwinds of the past 3 years."
🎙️Discussion: 1. How will tariff policies affect the movement of key assets such as U.S. stocks, gold, and Bitcoin? 2. Given this context, Show More
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