China shares poised to reopen with markets fixated on fiscal stimulus

Chinese investors are looking for more policy direction from China’s top economic planning body on Tuesday, when mainland markets return from a week-long holiday.  

A panel of senior officials from the National Development and Reform Commission, including chairman Zheng Shanjie, will brief reporters on the implementation of stimulus policies at the press conference on Tuesday at 10 a.m. local time, according to the notice from the State Council on Sunday. 

Economists and traders are closely watching for additional policy measures as Beijing has signaled a sense of urgency in bringing its economy back on track to hit the annual growth target of “around 5%.” 

Before the week-long holiday, authorities unveiled a flurry of stimulus policies, including interest rate cuts, lower cash reserve requirements at banks, looser property purchase rules and liquidity support for stock markets.

Chinese major indexes have surged over 25% as investors cheer on the barrage of stimulus measures. Last week, China’s CSI 300 blue-chip index extended a nine-day winning streak, surging over 8% Monday, before the market closed for a week-long holiday. Hong Kong stocks, however, reopened Wednesday last week and traded above 23,000 on Monday for the first time since 2022.

The futures contracts tied to MSCI China A50 Connect Index, which tracks 50 mega-cap stocks in the A-share market, have surged nearly 15% since Sept. 30, to 2,536.6 as of 2:30 p.m. on Monday. The SGX FTSE China A50 Index futures also surged 12.7% to 15,672 over the same holiday period.

The Ministry of Finance is not participating in Tuesday’s presser and has not yet announced major policies to support growth, despite reports of such plans. Now the government needs to add fiscal stimulus to maintain the rally’s momentum, said Shaun Rein, founder and managing director of China Market Research Group. Rein said the key thing to watch for in Tuesday’s meeting is if the new measures target the real economy.

In the very near term, the optimism might continue “albeit at a less furious pace,” said Lynn Song, chief economist of Greater China at ING, suggesting that policymakers might press forward with more supportive policies to “capitalize on the positive momentum coming out of the long break.” 

But the rally’s momentum depends on the actual implementation of previously announced policies and “how soon and aggressively” policymakers come up with follow-up support measures to boost consumer confidence and economic activity, Song said.

“If any of these things fall short, the optimism could falter,” he said.

A-shares have been moving toward the high end of a “relatively reasonable band” and trading above historical valuation levels, Song said. A-shares refer to stocks listed on the exchanges in Shanghai or Shenzhen.

Room for the market to continue rallying is “narrowing,” said Gary Ng, senior economist at Natixis, “it now depends on real improvements in the economy to justify the valuations.”

He expects the NDRC to announce the exact amount of additional fiscal policy on Tuesday, focusing on real estate and consumption.