Long-suffering Chinese stocks broke out of their doldrums last week following the announcement of a massive monetary stimulus plan aimed at helping the slumping Chinese economy hit its economic growth target.
The FTSE China 50 soared 16.2% for the week—the index’s biggest weekly return since 2007 (see the chart). Other China stock indices have also posted similar historical gains.
Weekly Return of FTSE China 50 Index
The Chinese government made several key decisions that fueled the rally, including:
- A roughly 50-basis-point interest rate cut on existing mortgage loans.
- A reduction in the amount of cash reserves banks must set aside.
- Fewer restrictions on borrowing money to invest in equities.
Given China’s position as the world’s second-largest economy, these and other stimulus measures helped boost international equities in Europe, emerging markets, and in particular, sectors that stand to benefit from financially stronger Chinese consumers (such as luxury goods, metals and mining, and materials).
China’s big gains last week—which have continued into this week thus far—are another reminder of potential opportunities for investors looking beyond U.S. stocks. But while intriguing, the current situation does demand some caution. Chinese stocks have generally declined since peaking in late 2020, and there have been several false starts since then. We will be searching for signals that this most recent stimulus round has truly taken root in market pricing and is being fully appreciated by investors.
By Mike Dickson, Ph.D.
Originally published October 3, 2024
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Information obtained from third-party sources is believed to be reliable but has not been vetted by the firm or its personnel.
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