China-Linked Stocks Surge Amid Strong Policy Stimulus: Wall Street Says, “This Time Is Different!”

On Thursday, Chinese tech stocks saw a major rally, with the NASDAQ Golden Dragon China Index ($NASDAQ Golden Dragon China - HXC.US) surging nearly 11%, marking its largest single-day increase since 2022. This impressive rise follows a cumulative 19.18% gain since the start of the week. Meanwhile, in Asia-Pacific markets on Friday, the CSI 300 Index (000300.SH) climbed 4.47%, contributing to a 15.7% weekly increase, while Hong Kong’s Hang Seng Index(800000.HK) gained 3.55%, with a total weekly rise of 13%.

Significant Surge in China-Linked Stocks

The surge was driven by key sectors like internet, consumer goods, and real estate, all posting impressive gains. Notable stock performances include Bilibili ($BILI.US), which soared 73.29% in the past five trading days, and JD.com ($JD.US) and PDD Holdings ($PDD.US), which jumped 32.19% and 29.43%, respectively. Additionally, KE Holdings($BEKE.US), a real estate services firm, rose 29.37%.

With expectations of a policy-driven economic boost in China, the metals and mining sectors also rallied. Silver Futures ($SIcurrent.US) hit its highest price in nearly 12 years, while copper prices surged 4.7% over the week, with Copper Futures ($HGcurrent.US) climbing above $10,000. Australian mining stocks saw a 9.54% increase, their best weekly performance since April 2016. Australian Treasurer Jim Chalmers hailed China’s stimulus measures as a “really welcome development” for both Australia and the global economy.

Impact of Stimulus on the Luxury Goods Sector

China’s latest stimulus measures are also making waves in the luxury goods market. With many Chinese citizens' wealth tied up in real estate, consumer spending had been under pressure. However, these new policies have helped alleviate concerns. Luxury brands like LVMH Moet Hennessy Louis Vuitton ($LVMUY.US), Kering Group ($KERING UNSPON ADR EA REPR 0.1 ORD EUR0.00 - PPRUY.US), Hermes International SA ($HESAY.US), and Estee Lauder($EL.US) all surged by over 10% on Thursday. Meanwhile, casino stocks in Hong Kong also posted gains.

Key Policy Highlights

China’s recent economic measures, following the PBOC’s announcement of three significant policy shifts on Tuesday, have injected new optimism into the market. A special Politburo meeting, usually scheduled for April, July, and December, was held on Thursday to discuss the current economic situation. This highlights the urgency surrounding China’s economic recovery. Key takeaways include:

• Monetary Policy: The Politburo emphasized substantial interest rate cuts, shifting away from cautious rhetoric.

• Fiscal Policy: Plans to maintain necessary fiscal expenditures include issuing 2 trillion yuan ($284.43 billion) in special sovereign bonds and considering local bond issuance to ease fiscal deficits.

• Real Estate Sector: A renewed focus on stabilizing and recovering the real estate market has sparked investor confidence.

In addition, the China Securities Regulatory Commission (CSRC) unveiled the "Guidance on Promoting the Entry of Medium and Long-Term Funds into the Market", which seeks to enhance regulatory inclusivity for equity investments, a move expected to support sustainable development in China’s stock markets.

Wall Street Analysts: "This Time Is Different!"

Wall Street analysts, including economists from Goldman Sachs, have revised their outlook for China, shifting from a bearish to a more bullish stance. In August, Goldman Sachs had downgraded its full-year GDP forecast for China due to weak economic data. However, the latest stimulus package is seen as a significant shift, boosting market confidence. Scott Rubner, managing director at Goldman Sachs, noted an increasing sense of FOMO (Fear of Missing Out) among investors in China. In fact, Goldman Sachs’ prime brokerage business saw short-term traders buying Chinese stocks for eight consecutive days, with purchases being overwhelmingly bullish. “I really think this time is different for China,” Rubner said in a note to clients.

Meanwhile, Morgan Stanley and other China observers are adopting a more optimistic outlook, with strategist Laura Wang forecasting an additional 10% short-term rise in the CSI 300 Index. HSBC also noted that recent policy rollouts in China have exceeded expectations, signaling a shift toward more proactive economic measures.

Conclusion: China’s Recovery Is Gaining Momentum

China-linked stocks are experiencing a strong rally, driven by aggressive policy stimulus and a recovery in sectors like technology, consumer goods, and real estate. Wall Street analysts are increasingly optimistic, with many suggesting that this rally could signal a turning point for China’s economy. As the government continues to roll out new fiscal and monetary measures, investors are taking a bullish stance, anticipating further gains in the coming months.

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