Experts weigh in on durability of China's sizzling stock rally – Yahoo Finance

October 1, 2024

Chinese stocks have soared over the past week, but will they continue to rise?

Jie Zhao/Getty Images

Recent gains in the housing sector came as China's three largest cities eased restrictions on home purchases and the People's Bank of China moved to lower mortgage interest rates. Residential real estate is an important and struggling industry in a country of 1.4 billion people.

China's stock market has fallen over the past three years due to the economic downturn.

China's economic growth slows down

The GDP growth rate in the second quarter was an annualized 4.7%, the lowest level in a year, falling short of the government's target of 5%. (Experts say the Chinese government is likely exaggerating the growth rate anyway.)

A stronger economic expansion could be a tailwind for stock markets and boost corporate profits. Many Chinese investors expressed optimism following the government's move.

Dickie Wong, executive director of research, said: “This is a really big shift. The policy is very focused. I've never seen such a clear directive to stop the decline in house prices and support the stock market. No,” he said. Kingston Securities told Reuters..

“Many foreign investors are afraid of missing out. Local retail investors are asking me what to add. Institutional investors are flooding the market to catch up.”

US stocks also received some support from China news last week.

But not everyone is crazy about government stimulus. China had previously announced similar measures, but without much impact.

Many experts say the economy will remain depressed until the real estate market recovers and middle-class consumers have enough income and confidence to spend it.

Veteran fund managers are skeptical of China's stock price rise

Ed Ponsi, columnist for TheStreet Pro and managing director of Barchetta Capital Management, is among the skeptics.

“I hate being the guy in the corner thinking, 'They don't know any of this,' while everyone else is dancing.” It’s true,” he wrote.

“That's the problem. It's not real. China's bazooka is nothing but smoke and mirrors. With the decision to use government funds to prop up the stock market, China has taken advantage of a literal joke: the 'plunge protection team.' And he made it a reality. ”

The Drop Protection Team was the nickname for the U.S. Financial Markets Task Force. It was established in 1988 to provide recommendations to the President of the United States during times of market stress.

Experts have doubts about stimulus package

Ponsi said there are already signs that China's economic stimulus plan is stalling. China is the world's largest consumer of copper, accounting for 57%. But after three weeks of gains, copper has fallen 2% since Thursday.

That's bad news for China, he said. “We can look to this industrial metal for clues about the health of China and the health of the global economy.”

Fund managers buy and sell:

Others have their doubts, too. “Amidst all the euphoria, structural problems in the economy remain,” said Rory Green, chief China economist at GlobalData TS Lombard. told the Wall Street Journal.

For many experts, memories of past government stimulus failures are top of mind. “Concerns about the possibility of a repeat of the previous unfortunate cycle persist,” said IG analyst Hebe Chen. The market told Bloomberg.

“It is still too early to tell whether this Golden Week rush will blossom into a true gold rush or fade into another mirage.”