Economist urges China to sober up after stock rally as boom-bust risk rises

Lu Ting, chief China economist at Japanese investment bank Nomura, says the risk of repeating the boom and bust in 2015 could rise rapidly in the coming weeks

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Hong Kong stocks retreated after six consecutive trading days, the Hang Seng Index closed at 21,743 at noon, down 700 points. Photo: Jelly Tse

Published: 3:06pm, 3 Oct 2024Updated: 5:22pm, 4 Oct 2024

Having experienced a rare, week-long stock rally after Beijing fired its policy bazooka to boost the economy, a more sober assessment is required as the possibility of a stock crash looms large, an economist has warned.

“Given the current market momentum and our tracking of sentiment on China’s social media, the risk of repeating the epic boom and bust in 2015 could rise rapidly in coming weeks,” said Lu Ting, chief China economist at Japanese investment bank Nomura, on Thursday.

“While investors might still be OK to indulge in the boom for now … we wish Beijing could be more sober.”

Last week, China’s central bank announced a raft of economic stimulus measures, including cutting bank’s reserve requirement ratio and policy interest rate, reducing the mortgage rate for existing housing, as well as introducing policy tools funded with 800 billion yuan (US$113.7 billion) to support the stock markets.

The moves lifted the onshore and offshore markets over the coming days, although the Hong Kong stock market slipped on Thursday.

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And while the stock market valuations and leveraging are still far from slipping into a crisis, China’s economy remains in an emergency mode, mainly due to the ongoing property slump, Lu added.