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A cursory look at the recent performance of the Chinese stock market shows a large distance from the S&P 500, the German DAX, the British FTSE and even the CAC.
Despite being a technology production powerhouse, you would never know that there has been an artificial intelligence boom that has helped other major global markets reach new all-time highs.
Since 2021, China’s stock market has been struggling thanks to several factors: the country’s aggressive zero-COVID policy, a real estate crash and debt crisis, and more. The government has tried several strategies to revive the market, but little has been effective.
The country unveiled its latest strategy on Tuesday, an aggressive series of stimulus measures, which raised the classic question: Is this time different?
The latest wave of efforts, which mainly consist of monetary policy, aims to inject liquidity and make borrowing easier, if there is demand for loans.
Our Chart of the Week shows that, so far at least, the market has an answer to that question: yes, it will be different. The stimulus news caused Chinese stocks to chart a vertical for the first time in years, turning the downward line into the beginning of a V as investors judged they were seeing a fundamental change in the China story.
“[Global] investors view Chinese stocks as almost uninvestable, despite the clear potential inherent in the world’s second-largest economy,” DataTrek’s Nicholas Colas wrote in a note to clients this week. “This week’s surprise announcement of aggressive fiscal and monetary policy measures encourages a reappraisal of that view.”
As billionaire David Tepper put it, now is the time to buy “everything” in China.
The roots of this revaluation stem from the government itself, which exercises economic control.
“China’s leadership has finally recognized that the country’s economy needs much more monetary and fiscal stimulus if it is to realize its long-term growth potential,” Colas wrote.
Some Chinese experts, such as Jeffrey Kleintop, Charles Schwab’s chief global investment strategist, are not yet convinced that the measures announced this week will actually help reverse China’s fortunes. They note that the “jury is still out.”
But while the actions so far may not cure the problems in the economy, the feeling that the patient has finally been taken to hospital is enough for investors to hope, sending Chinese stocks higher to the right.
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