Analysis-China’s stimulus message leaves investors wanting though hanging onto hope By Reuters

Written by Samuel Sheen, Ankur Banerjee, and Tom Westbrook

SHANGHAI/SINGAPORE (Reuters) – China’s much-anticipated announcement of fiscal stimulus plans on Saturday was big in intent but did not include the measurable details investors need to ratify their latest return to the world’s second-largest stock market.

Finance Minister Lan Fuan’s press conference on Saturday underscored Beijing’s broad plans to revive the faltering economy, with promises to deliver significant increases in government debt and support consumers and the real estate sector.

But for investors who were hoping to hear authorities spell out exactly how much the government would do in the crisis, the briefing was a disappointment.

“The strength of the announced fiscal stimulus plan is weaker than expected. There is no timetable, no amount and no details on how the money will be spent,” said Huang Yan, investment director at private fund firm Shanghai Qiuyang Capital in Shanghai.

Huang was hoping for more stimulus to boost consumption. Market analysts were looking for a spending package ranging from 2 trillion yuan to 10 trillion yuan ($283 billion to $1.4 trillion).

Reuters reported last month that China plans to issue special sovereign bonds worth about 2 trillion yuan this year as part of the new fiscal stimulus. Bloomberg News reported that China is considering injecting up to one trillion yuan of capital into its largest state banks. The press conference held by Lan did not provide any details.

In the three weeks since the People’s Bank of China (PBOC) launched China’s most aggressive stimulus measures since the pandemic, the CSI300 broke records for daily moves and rose 16% overall. However, stocks have grown erratically in recent sessions, as initial enthusiasm has given way to concerns about whether policy support will be significant enough to revive growth.

“If this is what we have in terms of fiscal policies, the uptrend of the stock market may lose steam,” Huang said, referring to comments made at Saturday’s press conference.

As the press conference approached, some investors were bracing for the finance minister to withhold details of actual spending until China’s parliament meets later this month.

Likewise, investors are also concerned that the mere cut in interest rates, which the People’s Bank of China has already announced, and the central government’s reluctance to spend, will jeopardize the prospects of the world’s second-largest economy being able to achieve its 5% growth target.

“Investors will need to be patient,” said Fred Newman, chief Asia economist at HSBC, noting that concrete numbers will only emerge by the end of this month when the Standing Committee of China’s National People’s Congress reviews and votes on specific proposals.

Jason Bedford, a former China analyst at Bridgewater and UBS, pointed to Lan’s pledge to recapitalize major state banks as a signal that authorities expect to see a rebound in credit demand.

“But the only way the economy needs more credit is to create demand for credit which can only be done if you provide financial (support).”

How much does it cost?

Investors have good reason to be cautious about how much Beijing will spend. The decline in consumer and real estate confidence is a byproduct of the years-long campaign by the Communist Party leadership to reduce debt and root out corruption.

However, hope that the authorities are serious about fixing these problems has pushed foreign investors and local retail funds into stocks. The People’s Bank of China’s 500 billion yuan swap facility helped channel more funds into the stock market.

The index has risen 12% since the measures were first announced on September 24, but real estate and tourism stocks are still declining in a sign of some doubts about the extent of government support.

Global commodity markets, from iron ore to other industrial metals and oil, also saw volatility on hopes that stimulus would fuel sluggish demand.

Matthew Habett, portfolio manager, said: “It is likely that some event funds will disappoint and unwind some bets on headline numbers that do not meet high expectations, but more significant capital flows may be encouraged by continued efforts to stabilize the economy and maintain growth at appropriate levels.” “. At Wilson Asset Management in Sydney.

According to LSEG Lipper data, overseas Chinese funds have received a net $13.91 billion since September 24, increasing inflows so far in 2024 to $54.34 billion. Much of that money went into exchange-traded funds (ETFs), while mutual funds still posted net outflows of $11.77 billion for the year.

Bedford hopes a rebound in retail interest will keep the stock market higher.

“We have a perfect storm of four factors at play,” he said, citing pent-up household savings, lack of attractive alternatives to the stock market, alignment of corporate and shareholder interests leading to increased buybacks and dividends, and central bank programs. Providing leverage for companies and institutions to invest in the stock market.

“The sustained Chinese family-led rise has the foundations for success… We started this process early and the risk is the possibility of flawed execution or not communicating things well. However, the structural story remains compelling.”

($1 = 7.0666 RMB)