Investor optimism about potential fiscal measures announced over the weekend by the Finance Ministry helped Chinese stocks end a volatile morning session with a positive note.
The CSI 300 Index rose 1.5% at the break of midday on Monday. It had recovered from a previous decline of 0.5%.
On Friday, the index saw its biggest weekly decline since late July. Bloomberg Intelligence’s index of Chinese developers, which had previously risen by more than 4%, rose 1.7%.
The fluctuations in the market reflect traders’ cautious optimism as they await further information about fiscal policies.
Lan Fo’an, the Finance Minister, hinted that upcoming measures would be taken to boost the real estate sector. He also suggested an increase in government borrowing. However, he didn’t provide an exact dollar figure.
The stock market’s rally, which began in September after the Central Bank introduced its stimulus measures, is believed to be dependent on increased fiscal spending.
Jing Liu was one of the economists who commented on HSBC Holdings Plc’s note:
The MOF’s press conference still surprised us, despite the lack of a large number for fiscal stimuli. This policy pivot is here to stay. The improved risk appetite has created a wealth-creating effect on both the property and stock markets.
A Hong Kong-listed index of Chinese stocks recovered most of the 2.7% drop it had suffered earlier.
Data released recently indicated China’s pressures to deflate grew in September. Consumer prices remained subdued, and factory gates prices continued to fall.
During a second briefing held on Monday, representatives from different government departments promised to improve policy support for business.
Caution is the best policy
Lan and his deputy announced at the briefing on Saturday that local governments will be allowed to use special bonds in order to purchase unsold houses, but they didn’t specify a specific amount.
Lan hinted that more sovereign bonds could be issued and expressed his commitment to reducing the debt burdens of local governments, indicating the possible occurrence of an unusual budget review in the weeks ahead.
Bloomberg conducted a survey before the weekend that indicated investors and analysts expected the Chinese government to introduce up to 2 trillion yuan (283 billion dollars) of new fiscal stimuli, including potential subsidies, vouchers for consumption, and financial assistance for families with kids.
The volatility of the market had increased in the weeks leading up to the Ministry of Finance’s (MOF) announcement. Last week, the CSI 300 Index experienced a drop of 3.3%. The recent recovery may be a fleeting event as the market momentum slows.
Markets have previously experienced cycles of gain and loss due to Beijing’s fragmented stimulus approach, which often led to temporary recovery.
Investors may stay away until after the FOMC and US elections in November, which could limit any large-scale stimulus. This could cap upside for now, according to Xin Yao Ng.
The post Chinese stocks rise amid hopes of fiscal support, closing morning session higher could be updated as new information unfolds
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