Chinese Government Unveils Economic Stimulus Package

In September, the Chinese government rolled out a comprehensive set of policies aimed at bolstering the weak economy and struggling housing sector, including significant interest rate cuts and reduced mortgage costs.

The People’s Bank of China (PBOC) announced a swap program with an initial size of 500 billion yuan to facilitate access to funding for stocks, along with a commitment to provide up to 300 billion yuan in low-interest loans to commercial banks to support share purchases and buybacks by listed companies.

Following the announcement, Chinese stocks experienced their best weekly performance in nearly 16 years, with a notable increase continuing into the following week. Reports indicated that the PBOC would instruct banks to lower existing mortgage rates by October 31, aiming to revitalize the distressed real estate market.

On Monday, stocks saw their largest single-day rise in 16 years, pushing the blue-chip CSI300 index nearly 30% above the lows from February, amidst concerns over the growth of the world’s second-largest economy.

Yardeni Research analysts referred to the government’s response as a “twin bazookas” policy, emphasizing monetary expansion and increased spending. However, skepticism remains regarding the sustainability of the stock market rally, raising the question of whether this upturn is a lasting recovery or merely a temporary rebound from previous pessimism.

The success of these stimuli may reflect in copper pricing, with China being the largest consumer of the metal. Despite the economic support measures, copper prices remained subdued.

Amidst the stock surge, analysts maintain their long-term recommendation for investors to favor US stocks over Chinese equities, citing persistent weakness in consumer spending in China.