Market Expectations for Chinese Stimulus

Investing.com – Analysts at UBS report that markets are anticipating a significant fiscal stimulus package from the Chinese government, complementing recent measures to aid the sluggish economy.

In September, Chinese officials unveiled a comprehensive set of policies, including a substantial interest rate cut and reduced mortgage costs.

The People’s Bank of China (PBOC) launched a 500 billion yuan swap program aimed at facilitating access to necessary funds for buying stocks for funds, insurers, and brokers. Additionally, the PBOC will provide up to 300 billion yuan in low-interest loans to commercial banks to help finance share purchases and buybacks by listed companies.

Chinese stocks achieved their best weekly performance in nearly 16 years following last month’s announcements, with the positive trend continuing into last week.

UBS analysts noted that some market participants speculate a potential fiscal stimulus package exceeding 10 trillion yuan. However, they believe a more realistic expectation is a modest package of 1.5 to 2 trillion yuan in the short term, with an additional 2 to 3 trillion yuan in fiscal expansion expected next year.

The analysts predict that a stimulus for 2024 could be announced shortly after the October holiday or around the third-quarter data release on October 18. Plans for 2025 might be formulated during the Central Economic Work Conference (CEWC) in December 2024.

Morgan Stanley analysts separately highlighted that the stimulus’s size and timing would likely be positively perceived by onshore investors, reinforcing Beijing’s commitment to enhancing growth through coordinated policies, despite its trial-and-error approach.

Consumer prices in China rose at their fastest rate in six months in August, largely due to increased food costs driven by weather disruptions rather than a strong rebound in domestic demand.

Morgan Stanley analysts expressed cautious optimism regarding China’s policy shift and its potential to boost growth in the world’s second-largest economy.

(Reuters contributed reporting.)