An abrupt move by China’s leaders to prime the economy with stimulus has produced a powerful rally in the country’s stocks, which have posted their biggest single-week gain in nearly 16 years.
 

Chinese stocks post best week since 2008

On Friday, the CSI 300 index, which tracks major Chinese companies listed in Shanghai and Shenzhen, jumped 4.5%, bringing its weekly gain to 15.7%.

This marks the index’s largest weekly increase since November 2008, a period of extreme market volatility during the onset of the global financial crisis.

Meanwhile, Hong Kong's Hang Seng Index, known for its volatility and a mix of companies operating in both Hong Kong and mainland China, also surged 12.8% for the week.

The recent gains have pushed the mainland Chinese CSI 300 index into positive territory for the year, while Hong Kong stocks have surged 21% in 2024. These are significant reversals for markets that have trailed behind other regions in Asia and the U.S. for more than a year.

China’s sharp market rally could temporarily boost public confidence as the country grapples with deflation, sluggish retail sales, and a housing crisis. The government has been working to restore confidence and encourage consumers and homebuyers to begin spending again.
 

Analysis on the Chinese Market

David Chao, a global market strategist at Invesco, suggested that the rally in China stocks could be sustained. "Chinese markets are driven by momentum, and I see certain parallels between the current rally and the one from 2014-15," he noted, referencing the approximately 150% increase in Shanghai’s index from June 2014 to June 2015, followed by a subsequent collapse.

Chao also mentioned that as the dollar continues to weaken due to interest rate cuts by the Federal Reserve, he anticipates a potential rotation from the expensive and crowded global tech sector into more affordable emerging market assets.

Economists are split on whether China's planned distribution of funds to the poor will serve as a foundation for a more extensive initiative to enhance the social safety net and boost consumer spending in the economy. Xi Jinping, China's top leader, has shown significant caution over the years regarding increased government support for the poor.

Three years ago, he cautioned that China “must not aim too high or go overboard with social security, and must avoid the idleness-breeding trap of welfarism.”

Some China experts, like Charles Schwab's chief global investment strategist Jeffrey Kleintop, aren’t yet convinced that the measures announced this week will, in fact, work to reverse China’s fortunes, noting that the “jury is still out.”

But while the actions so far may not cure the economy’s woes, the sentiment that the patient has finally been driven to the hospital is enough for investors to hope, sending China’s stocks up and to the right.