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Excerpts from CGS International report
Analyst: Edith Qian, CFA
China’s stock market rally still has legs
| ■ Policymakers delivered coordinated efforts to boost growth with more focus on wealth effect from both stocks and properties. ■ We expect more fiscal and property policies ahead which could provide further catalysts for the stock market rally. ■ We lift our end-CY24F HSI target from 20,400 pts to 24,500 pts; prefer consumer names and real estate sector. |
Politburo meeting marked a major shift in China’s policy playbook
China’s double policy dose on 24 Sep and 26 Sep 2024 (refer to our strategy reports “China unveils policy package to lift growth” and “Politburo meeting provides another positive policy surprise”) demonstrated that policymaker’s economic pain threshold has been reached.
More importantly, we believe the policy events marked a major shift in China’s policymaking approach, as
| 1) the wealth effect (from stocks and property) has come under the radar of policymakers; and 2) policymakers signalled a willingness to boost consumption through direct subsidies to address insufficient domestic demand and the structural mismatch between supply and demand that has contributed to the disinflationary pressure. |
Policy momentum will help sustain the rally
During the past weekend, we witnessed a swift start to follow through on policy directions set during the politburo meeting.
Looking ahead, we expect a series of policy measures with implementation details, which should serve as further catalysts for the stock market rally.
For fiscal policies, we expect sovereign bond issuance of around Rmb2tr for consumption-related purposes and for replenishing capital of large state-owned banks.
For property policies, we expect better execution of existing measures, including accelerating loan approval under the “white-list” mechanism, step-up in purchase of excess inventories for conversion into affordable housing, and potential buybacks of developers’ idle land.
| "Major downside risks include 1) the rapid, liquidity-driven rally in the A-share market may draw more regulatory scrutiny to avoid a 2015-style market turbulence and crash; and 2) the upcoming US presidential election which may introduce renewed uncertainty for Sino-US relationship." -- CGS International |
Better policy execution necessary to address investability concerns
The size of potential policy measures is likely larger than our previous expectations but should not be considered as a “bazooka”.
While the policy pivot will help improve China’s growth outlook, China still needs to address structural issues through both large-scale fiscal policies and structural reforms, in our view.
For global investors to view the China stock market as more “investable”, we believe strong policy implementation is warranted, along with a more sustainable improvement in consumer confidence and private sector’s “animal spirit”.
Full report here.
