By Samuel Shen, Ankur Banerjee and Tom Westbrook
SHANGHAI/SINGAPORE (Reuters) – China’s long-awaited announcement of financial stimulus plans on Saturday was big on scope but low on measurable detail that investors need to validate their recent return to the world’s second-largest stock market.
Saturday’s news conference by Finance Minister Lan Foan reiterated Beijing’s broad plans to revive the ailing economy, with promises of significant increases in government debt and support for consumers and the real estate sector.
But for investors hoping to hear authorities say exactly how much the government will commit to the crisis, the briefing was disappointing.
“The strength of the announced fiscal stimulus plan is weaker than expected. There is no timetable, no amount, no details on how the money will be spent,” said Huang Yan, investment manager at private fund firm Shanghai QiuYang Capital Co in Shanghai.
Huang had hoped for more stimulus measures to boost consumption. Market analysts were looking for a spending package between 2 trillion and 10 trillion yuan ($283 billion to $1.4 trillion).
Reuters reported last month that China plans to issue special government bonds worth about 2 trillion yuan this year as part of new fiscal stimulus. Bloomberg News reported that China is considering a capital injection of 1 trillion yuan into its largest state-owned banks. Lan’s press conference provided no details.
In the three weeks since the People’s Bank of China (PBOC) kicked off China’s most aggressive stimulus measures since the pandemic, the CSI300 Index has broken records for daily moves, rising 16% overall. However, stock prices have become shaky in recent sessions as initial enthusiasm gave way to concerns over whether policy support would be strong enough to revive growth.
“If that’s what we have in terms of fiscal policy, the bull run in the stock market could run out,” Huang said, referring to comments at Saturday’s news conference.
Ahead of the briefing, some investors had prepared for the finance minister to withhold actual spending details until China’s parliament meets later this month.
At the same time, investors were also concerned that mere rate cuts, which the PBOC has already announced, and a central government reluctance to spend would jeopardize the world’s second-largest economy’s chances of meeting its 5% growth target .
“Investors will have to be patient,” said HSBC chief economist Fred Neumann, noting that concrete figures might not come until the end of this month, when the National People’s Congress standing committee reviews and votes on specific proposals.
Jason Bedford, a former China analyst at Bridgewater and UBS, pointed to Lan’s pledge to recapitalize major state-owned banks, indicating that authorities expect a rebound in credit demand.
“But the only way the economy needs more credit is if you create a demand for credit, which is only possible if you provide fiscal support.”
HOW MANY?
Investors have good reason to be cautious about how much Beijing will spend. The decline in consumer confidence and the real estate sector is a byproduct of the Communist Party leadership’s years-long push to reduce debt and root out corruption.
Still, hopes that authorities are serious about solving these problems have driven foreign investors and domestic retail money into stocks. The PBOC’s 500 billion yuan swap facility to channel more money into the stock market has helped.
The Shanghai Composite index has risen 12% since the measures were first announced on September 24, but real estate and tourism stocks still signal some doubt about the extent of state support.
Global commodity markets, from iron ore to other industrial metals and oil, have also been volatile on hopes that stimulus measures will fuel sluggish demand.
“Some event money may be disappointed and take away some headline bets that fall short of high expectations, but the more important capital flows can be encouraged by continued efforts to stabilize the economy and keep growth at appropriate levels,” said Matthew Haupt, portfolio manager. at Wilson Asset Management in Sydney.
According to data from LSEG Lipper, foreign Chinese funds have received a net $13.91 billion since September 24, increasing inflows so far in 2024 to $54.34 billion. Much of that money has flowed into exchange-traded funds (ETFs), with mutual funds still reporting net outflows of $11.77 billion this year.
Bedford is hopeful of a revival of retail interest, which will support the stock market rally.
“We’re dealing with a perfect storm of four factors,” he said, citing pent-up household savings and a lack of attractive alternatives to the stock market, an alignment of corporate and shareholder interests that is pushing buybacks and dividends, and programs of central banks. providing leverage to companies and institutions to invest in the stock market.
“A sustained rally, led by Chinese households, has the foundation for success… we are still early in this process and the risk is the possibility of poor execution or communication. However, the structural story remains convincing.”
($1 = 7.0666 Chinese Yuan Renminbi)
(Reporting by Ankur Banerjee, Tom Westbrook in Singapore, Samuel Shen in Shanghai, Gaurav Dogra in Bengaluru; Writing by Vidya Ranganathan; Editing by Kim Coghill)
