Chinese and China-focused stocks posted their best week since 2008 last week, with the CSI 300 index shooting up 15.7 per cent after strong economic stimulus measures were put in place by the country’s government.
Every index tracking Chinese stocks benefited from the measures, with Hong Kong’s Hang Seng index rising more than 13 per cent over the week, leading to Chinese equities have their best month since November 2008.
The benefits haven’t just stayed in China: Chinese stocks dual-listed in the West have grown massively, with New York-listed Alibaba jumping 20 per cent last week.
Meanwhile, UK brands with large markets in China, like luxury fashion retailer Burberry, received similar payoffs, with the brand seeing stock prices surge more than 18 per cent.
This was the fourth best weekly performance for Burberry in the past 16 years, despite issuing multiple profit warnings and cutting its dividend in recent months.
The stock market rally was kicked off after China unveiled its largest set of economic stimulus measures since the pandemic, with the country’s central bank cutting its benchmark interest rate by 50 basis points, as well as the amount banks must hold as cash reserves by 20 basis points.
Interest rates on existing mortgages will be reduced by 50 basis points on average, a move targeted to help homeowners. The country’s central bank also introduced a new swap facility to help funds and brokers access funding to purchase equities.
According to the People’s Bank of China Governor, Pan Gongsheng, the economic stimulus amounted to about one trillion yuan of liquidity (£110bn), while the country’s government also earmarked about 800bn yuan (£85bn) for stock investments and share buybacks.
Rumours have also swirled about a new fiscal package to encourage growth, making markets even more hopeful that the country is about to hit its five per cent annual growth target, which had previously been thought to be out of reach.
“The government is very determined not only to reactivate the economy, but to send a message to the market and that message is to get back on track,” said Alberto Matellán, chief economist at MAPFRE Inversión.
Even if the measures aren’t as effective as the Chinese government hopes they will be, its clear that one thing is returning back to the Asian market that was sorely missed: Confidence.
“It’s an important problem that isn’t talked about as much, both because of certain decisions taken by the government, because of geopolitics and because of economic developments,” said Matellán.
Nevertheless, the market has clearly been undervalued over the last two years, with many Chinese stocks even trading below book value. This show that the government is planning to do more might be enough to keep the momentum of China-focused stocks going.