Chinese stocks witnessed their largest weekly rise on Friday since 2008 after Beijing launched a comprehensive economic stimulus package that included a $114 billion fund to support the stock market, according to the Financial Times.
The newspaper added that the CSI 300 index, which tracks companies listed in Shanghai and Shenzhen, rose by 15.7% this week, recording its best performance since November 2008 when China announced a similar stimulus package in response to the global financial crisis.
This rise in Chinese stocks also led to European markets and industrial metal prices rising, according to the newspaper, at a time when the Chinese leadership seeks to stabilize capital markets, address the real estate sector crisis, and boost domestic consumption to achieve the economic growth target set at 5% for this year. .
Last Tuesday, the People’s Bank of China announced the establishment of an 800 billion yuan ($114 billion) lending fund for capital markets, with the aim of enabling companies to buy back their shares and providing financing to non-bank financial institutions, such as insurance companies, to invest in local stocks.
Markets respond with record gains
The CSI 300 index closed up 4.5% on Friday, while the Hang Seng Index in Hong Kong rose 3.6%, achieving the largest weekly gains since the 1998 Asian financial crisis.
This rise was supported by expectations of further stimulus in China, which pushed European stocks higher. The STOXX 600 index in Europe reached a new record high today, Friday, driven by luxury goods companies that will benefit from the expected increase in consumer spending in China.
Nicholas Yu, head of Chinese equities at Aberdeen, told the Financial Times that this time is a crucial moment for the Chinese economy and the stock market, noting that the recent interest rate cut by the US Federal Reserve (the central bank) will also provide a major boost. “Favourable global conditions will boost consumption, which is beneficial for China, the world’s largest exporter,” he said.
Liquidity driven momentum
The Chinese authorities took steps to restrict daily data on foreign investor flows into local stocks through the Hong Kong Stock Connect program, but trading activity witnessed a significant increase, according to the Financial Times.
Citi reported that the past three days have been the busiest for its stock sales and trading team in Asia, with record client flows into stocks in Hong Kong and China. The Shanghai Stock Exchange issued a notice warning of “abnormally” slow transaction speeds as a result of hectic morning trading.
Winnie Wu, an equity analyst at Bank of America, told the Financial Times, “This is the first time the government has encouraged leveraged investment in the stock market. This liquidity-driven rally still has a lot of room to go.”
Industrial metals rise thanks to stimulus
Stimulus measures pushed commodity prices higher, with industrial metals such as copper, aluminum and zinc witnessing significant increases, according to the newspaper.
Copper, which is widely used in the construction sector for electrical connections, has risen more than 5% since Tuesday, surpassing $10,000 per ton, its highest level in 3 months.
The stimulus package also helped bring about a recovery in iron ore prices, which recently fell to their lowest level in two years due to weak steel consumption.
David Zhao, global markets strategist at Invesco, expressed optimism about the sustainability of the rise in Chinese stocks, pointing to similarities with the 2014-2015 rise when the Shanghai index rose about 150% before collapsing.
In an interview with the newspaper, he pointed out the possibility of shifting from expensive global technology assets to less expensive assets in emerging markets with the decline of the US dollar due to the interest rate reduction.
Meanwhile, Colin Hamilton, a commodity expert at BMO Advisory, confirmed, “In a commodity for which expectations were negative, such as iron ore, this indicates a clear shift. We see it as a re-inflation trade, but the question remains whether this is enough to boost consumer confidence.” “The weak.”
