Beijing’s stimulus action likely to make riskier Chinese assets look better to investors

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Investors are reacting favourably to a hefty stimulus package from Beijing and they are likely to take on greater risks with Chinese assets

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A man at a brokerage in Hangzhou. Photo: CFOTO/Future Publishing via Getty Images

Zhang Shidongin Shanghai

Published: 2:56pm, 26 Sep 2024Updated: 4:19pm, 26 Sep 2024

Investors are reacting favourably to a hefty stimulus package from Beijing, which is aimed at jump-starting moribund growth, and they are likely to take on greater risks when buying Chinese assets.

Signs are emerging that traders have been snapping up riskier assets this week after the People’s Bank of China (PBOC) introduced 800 billion yuan (US$114 billion) worth of new funding tools for buying stocks and pledged more monetary easing. Central bank governor Pan Gongsheng said the establishment of a stabilisation fund for stocks was being considered.

The benchmark CSI 300 Index has jumped nearly 11 per cent this week and is on course for its best weekly performance since December 2014. The Hang Seng Index is heading for a 9.1 per cent gain for the week, which would be the biggest advance since October 2011 if the momentum holds up.

The offshore yuan this week strengthened past 7 against the US dollar for the first time in 16 months. And a bull run in China’s debt market has taken a breather, with the yield on the benchmark 10-year government bond rising from a record low.

“This may be a good time to revisit Chinese stocks,” said David Chao, a strategist at US asset-management firm Invesco. “I believe that investors may pick up Chinese shares at these levels [ahead of the] proposed stabilisation fund, and more government support.”

Just a week ago, investor interest was much lower, as turnover in China’s stock markets fell to its lowest point in four years. Also, bearish calls on yuan-denominated stocks were prevalent among Wall Street firms. The first interest-rate reduction from the US Federal Reserve in four years has left the door open for China to be more aggressive in beating back an economic slowdown that has been driven by a downturn in the property market and stagnant consumer spending.

The stimulus package is more significant in terms of policy signals and monetary easing has paved the way for a loosening of fiscal and industrial policies going forward, according to China Asset Management, the nation’s biggest money manager which oversees 1.9 trillion yuan in assets. It also suggests top policymakers are more mindful about achieving annual gross domestic product growth of 5 per cent, the money manager said.