China starts to reverse its ‘uninvestible’ image: Chart of the Week

By Investor Empires On Sep 28, 2024

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A cursory glance at the recent performance of China’s stock market shows a significant decoupling from the S&P 500, the German DAX, the UK’s FTSE, and even the Le Cac.

Despite being a technological manufacturing powerhouse, you would never know there is a breakthrough in artificial intelligence that is helping push other major global markets to new highs.

Since 2021, the Chinese stock market has been struggling thanks to a variety of factors: the country’s strict coronavirus elimination policies, a real estate collapse and debt crisis, and more. The government has tried various strategies to stimulate the market, however Little had an impact.

The country unveiled its latest strategy on Tuesday, an aggressive set of stimulus measures, which raised the classic question: Is this time different?

The latest wave of efforts, mostly involving monetary policy, is aimed at injecting liquidity and facilitating borrowing, if there is demand for loans.

This week’s chart shows that the market, so far at least, has an answer to this question: yes, it will be different. The stimulus news sent Chinese stocks to draw a vertical line for the first time in years, changing the downward line to the beginning of a V as investors reasoned they saw a fundamental change in the Chinese narrative.

“(Global) investors have viewed Chinese stocks as almost uninvestable, despite the clear potential inherent in the world’s second-largest economy,” DataTrek’s Nicholas Colas wrote in a note to clients this week. “This week’s surprise announcement of tough fiscal and monetary policy measures prompts a reassessment of this view.”

like In the words of billionaire David TepperNow is the time to buy “everything” in China.

The roots of this revaluation stem from the government itself, which exercises economic control.

“Chinese leadership has finally acknowledged that the country’s economy needs more monetary and fiscal stimulus if it is to achieve its growth potential over time,” Colas wrote.

Some China experts, such as Jeffrey Kleintop, chief global investment strategist at Charles Schwab, are not yet convinced that the measures announced this week will actually reverse China’s fortunes, noting that “the jury is still out.”

But although the measures taken so far may not address the economic problems, the feeling that a patient has finally been hospitalized is enough for investors to hope, which should push Chinese stocks higher and to the right.