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Chinese equities on Monday posted their best day since the 2008 global financial crisis, extending a historic rally triggered by Beijing’s stimulus package.
China’s blue-chip CSI 300 index of Shanghai- and Shenzhen-listed companies soared 8.5 per cent on Monday, as investors piled in ahead of a public holiday for the rest of the week for the country’s Golden Week celebrations.
Monday’s move continued a rally that started last week when first the People’s Bank of China, followed by the politburo led by President Xi Jinping, pledged widespread monetary and fiscal stimulus measures to support the country’s flagging economic growth.
The CSI 300 has now risen a cumulative 24 per cent over five sessions since last Tuesday, before the measures — including a $100bn central bank war chest for investors and companies to buy shares — were announced.
In Hong Kong the Hang Seng index closed up 2.4 per cent, led higher by Chinese companies listed in the territory including Alibaba and Tencent. Its year to date performance now stands at 24 per cent, higher than the S&P 500’s 20 per cent.
“We do think this equity market rally could go a bit further,” said Manik Narain, head of emerging markets strategy at UBS. “I would say from here another 5 to 10 per cent rally would not look extreme in our opinion.”
The rally comes in contrast to the performance of other big Asian markets on Monday. Japan’s Nikkei 225 tumbled 4.8 per cent following news that its incoming prime minister, Shigeru Ishiba, is to call a general election for October 27.
India’s BSE Sensex, which has been seen as a major beneficiary of equity investors rotating out of China, was down 1.5 per cent. South Korea’s Kospi closed down 2.1 per cent.
The gains in the Chinese market also spurred commodity prices, with iron ore futures expiring in January 2025 and traded on the Dalian Commodity Exchange up almost 11 per cent.
However, analysts cautioned that a long-lasting China rally would not be sustained by monetary policy easing alone, calling for more details on fiscal stimulus.
“The market needs a ‘1-2-3 punch’ [with current monetary easing as the first action], followed up by big fiscal stimulus, and more importantly structural reform to sustain the rally rather than a short term trade,” said Minyue Liu, investment specialist for Greater China and global emerging market equities at BNP Paribas Asset Management.
“This China stimulus is likely to stay within Chinese borders,” said Narain of UBS. “Upon completion of Golden Week maybe we’ll see more details on the stimulus measures — we’re looking for details on measures to support consumption for example . . . which are very scant.”
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