Chinese equities recorded their strongest week since 2008 after Beijing announced a $114 billion stimulus package aimed at boosting the stock market. The CSI 300 index, which tracks companies listed in Shanghai and Shenzhen, surged by 15.7%—its best performance since November 2008, when a similar stimulus was rolled out during the global financial crisis.
This rally, which has also buoyed European markets and industrial metals, reflects China’s commitment to stabilize its capital markets, address the ongoing property sector crisis, and enhance domestic consumption to meet its 5% annual growth target. On Tuesday, the People's Bank of China introduced an Rmb800 billion ($114 billion) lending pool to assist companies in buying back shares and enable non-bank financial institutions to purchase local equities. By Friday, the CSI 300 had closed up 4.5%, while Hong Kong's Hang Seng index gained 3.6%, marking a 13% rise for the week—the largest weekly jump since the Asian financial crisis of 1998.
Nicholas Yeo, head of China equities at Abrdn, pointed out that the recent rate cuts by the U.S. Federal Reserve would provide additional momentum. He noted that global easing is expected to boost consumption, benefiting China, the world’s largest exporter. Anticipation of further stimulus measures from China also contributed to the rise in European stocks, with the Stoxx 600 reaching a record high, driven by luxury brands that are poised to benefit from increased Chinese consumer spending.
Increased trading activity was evident, with Citi reporting record client flows into Chinese equities over the past three days. The Shanghai Stock Exchange even cautioned about "abnormally" slow transaction speeds due to heightened morning trading. Analysts like Winnie Wu from Bank of America noted that this rally differs from previous policies, as the government is encouraging leveraged investment, suggesting that the liquidity-driven surge could continue for an extended period.
David Chao, a global market strategist at Invesco, compared this rally to the stock surge of 2014-2015, when Shanghai’s index rose by 150% before a subsequent crash. He predicted a shift from expensive global tech stocks to cheaper emerging market assets as the dollar weakens amid further U.S. rate cuts.
China's stimulus measures have also driven up commodity prices, with the exception of oil, which faced pressure from Saudi Arabia’s plans to increase output. Industrial metals such as copper, aluminum, and zinc—key materials for China's manufacturing sector—have seen significant gains. Copper, extensively used in construction, rose over 5% since Tuesday, surpassing $10,000 per tonne and reaching a three-month high. Iron ore, which had recently plummeted to a two-year low due to weak steel demand, experienced a rebound, signaling a potential shift in market sentiment. Colin Hamilton, a commodities strategist at BMO, referred to this as a "reflation trade," though the crucial question remains whether it will be enough to lift weak consumer sentiment.
