Is China's historic rally sustainable?
September 30, 2024 (Investorideas.com Newswire) China's CSI 300 Index has surged 8.48%, closing at 4,017.85-its highest point since August 2023 and marking its best single-day performance since September 2008.
Healthcare and tech stocks drove this nine-day winning streak, which has injected a wave of optimism into the market.
But the CEO of one of the world's largest independent financial advisory and asset management organizations says that questions remain.
Nigel Green of deVere Group asks: Is this rally sustainable? And, does it reflect a genuine economic turnaround?
"The impressive rise comes in the wake of recent stimulus measures from the Chinese government, aimed at stabilizing an economy facing significant headwinds. In recent months, the People's Bank of China (PBoC) has implemented a range of monetary policies, including interest rate cuts and lowering the Reserve Requirement Ratio (RRR) for banks so they can lend more freely.
"The market has responded positively to these moves, with tech and health-care stocks leading the charge. The rise of these sectors reflects growing investor confidence that China's innovation economy is gaining ground, even in the face of domestic challenges."
Despite the rally, there remains a note of caution
The deVere CEO continues: "While the stimulus measures have spurred the market in the short term, there are doubts that these actions are insufficient to sustain either the stock market's growth or a broader economic recovery.
"The current policies are geared toward stabilizing the economy, but they lack the depth required for a sustainable, long-term impact. These measures are akin to a quick fix-they address the symptoms but not the root causes of China's economic malaise."
To ensure lasting recovery, China must go beyond its current monetary easing strategy.
While the recent rate reduction has provided some relief, "more aggressive cuts will be needed to stimulate investment and consumer spending". China's real estate sector, in particular, requires further financial support to shore up confidence.
"Beijing's efforts so far have largely focused on monetary policies, but fiscal stimulus-such as increased government spending on infrastructure projects and incentives for consumer spending-could provide a much-needed boost to economic demand."
SMEs, the backbone of China's economy, remain under-supported. They are struggling with weak demand and tight credit conditions. Implementing targeted measures to lower taxes, ease borrowing restrictions, and provide direct financial assistance could foster a more resilient economic landscape.
"China's economy faces deep-rooted structural challenges, from a slowing property market to rising local government debt and an aging population.
"Without addressing these core issues, the economy is likely to continue experiencing volatility. A further prolonged slowdown in the real estate market, for example, could have ripple effects across various sectors, impacting consumer confidence and employment rates.
"Also, global headwinds-including slowing demand for Chinese exports and ongoing geopolitical tensions-are adding further strain. Short-term stimulus measures may provide a temporary boost, but the underlying fragility remains unaddressed," notes Nigel Green.
China's economic performance is critical not just for domestic growth but for the global economy.
"As the world's second-largest economy, China plays a key role in international supply chains, and a sustained downturn could have significant ripple effects. Investors, both domestic and international, are watching closely to see whether Beijing will take bolder steps to solidify its economic foundation. If this happens, China will emerge stronger than ever," he concludes.
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