When It Crashed, I Should Have Bought... Chinese Stock Market Rises Again on Xi Jinping's Stimulus Plan

Hong Kong H Index Rises 20% from Low
Effect of China’s Stimulus Measures
Additional Stimulus Expected to Achieve 5% Economic Growth Rate

The Chinese stock market, which was extremely sluggish at the beginning of the year, has rebounded, rising nearly 20% from this year's low. This is interpreted as a result of the stimulus measures introduced by the Chinese government to prevent an economic recession. In particular, there is growing expectation that the Chinese authorities will continue to announce additional stimulus measures to achieve the targeted economic growth rate of 5%, and that the upward trend in the Chinese stock market will continue. However, the U.S. presidential election event remains a variable.

On the 12th, the Hong Kong H-Share Index, composed of Chinese companies listed in Hong Kong, closed at 5949.52, up 3.5% from the previous trading day. Since the low point on January 22 (5001.95), the Hong Kong H-Share Index has surged 19%. Similarly, the CSI300 Index and the Shanghai Composite Index, both composed of representative Chinese companies, have risen 13% from their yearly lows.

Foreign investors' buying momentum has increased significantly. Mainland Chinese stock markets saw an inflow of 1.8 billion yuan (approximately 328.4 billion KRW) this month, and if this trend continues, foreign capital, which had experienced six consecutive months of net outflows until January, will shift to two consecutive months of net inflows. Morgan Stanley stated, "Global funds' selling of Chinese stocks slowed until the end of February, and they began adding growth and technology stocks to their portfolios."

Xi Jinping's Stimulus Measures Effective

Bloomberg pointed out that the main factor behind the stock market rise is the accumulation of stimulus measures introduced by Chinese authorities showing their determination to defend stock prices. Representative examples include the cap on cross-border total return swap (TRS) transaction amounts for securities firms to prevent so-called 'malicious short selling,' and the mortgage rate for the 5-year loan prime rate (LPR) being cut from the previous 4.20% to 3.95%, the largest reduction ever.

On the 5th, Premier Li Qiang set the economic growth target at 5% at the National People's Congress. Major U.S. media outlets such as The Wall Street Journal (WSJ) have analyzed that achieving this target is not easy considering deflation and prolonged real estate downturn facing the Chinese economy. To dispel concerns, there are counterarguments that the Chinese government will present additional stimulus measures, such as easing regulations on high value-added industries. Bloomberg reported, "Some investors express dissatisfaction that no large-scale stimulus was announced at the Two Sessions, but the important thing is that steady policies are accumulating, which is positive for the stock market."

Signs of recovery in major economic indicators are also emerging. Last month, the Consumer Price Index (CPI) rose 0.7% year-on-year, rebounding for the first time in six months. Exports in January and February increased 7.1% year-on-year, significantly exceeding the forecast of 1.9%. Nicholas Ye, head of China equities at UK-based asset management firm Standard Life, analyzed, "Deflationary pressure is expected to ease this year, giving companies more decision-making power," adding, "We are currently near the bottom."

Strong Reaction to Good News... Is the Chinese Stock Market Different from Before?

The market is evaluating that the Chinese stock market is different from before, as investors are responding strongly with stock prices to recent good news from Chinese companies. For example, when electric vehicle maker Li Auto announced last month that its net profit turned positive at 11.8 billion yuan last year, its stock price surged 25%. Xiaomi's stock price rose 11% on news of its electric vehicle SU7 sales. This is clearly a different trend from last year, when stock prices often fell despite good earnings.

Ronald Temple, chief market strategist at Lazard Asset Management, said, "It is reasonable to increase investment in China now," adding, "China could be one of the best-performing stock markets in the next 12 to 18 months."

On the other hand, cautious views remain. First, there is concern that anti-China sentiment could grow in the U.S., especially among political circles, ahead of the November presidential election. Goldman Sachs Asset Management's investment division stated in a memo to investors, "It is not yet the time to invest in China." Senior portfolio manager Allen Richardson of Samsung Asset Management said, "The stabilization of the Chinese stock market is different from a V-shaped strong market recovery."

This content was produced with the assistance of AI translation services.