This is the conclusion of today’s morning summary, which you can register to receive in your inbox every morning along with:
A cursory look at China’s recent stock market performance shows a huge disconnect with the S&P 500, Germany’s DAX, the UK’s FTSE and even the CAC.
Despite being a technology manufacturing powerhouse, you would never know that there has been an artificial intelligence boom that is helping to drive other major global markets to new record levels.
Since 2021, China’s stock market has been struggling thanks to a variety of factors: the country’s aggressive zero-COVID policies, a housing and debt crisis, and more. The government has tried various strategies to revitalize the market, but they have had little impact.
The country unveiled its latest strategy on Tuesday, an aggressive set of stimulus measures, raising the classic question: Is this time different?
The latest wave of efforts, mainly involving monetary policy, aims to inject liquidity and facilitate borrowing, if there is demand for loans.
Our chart of the week shows that, at least so far, the market has an answer to that question: Yes, it will be different. The stimulus news caused Chinese stocks to draw a vertical line for the first time in years, shifting the downward line to the beginning of a V as investors judged they had seen a fundamental shift in the China narrative.
“[Global] Investors have deemed Chinese stocks nearly impossible to invest in, despite the obvious 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 on aggressive fiscal and monetary policy measures is spurring a reassessment of that view.”
As billionaire David Tepper said, the time has come to buy “everything” in China.
The roots of this reevaluation come from the government itself, which exercises economic control.
“China’s leaders have finally recognized that the country’s economy needs much more monetary and fiscal stimulus if it is to reach its growth potential over time,” Colas wrote.
Some China experts, such as Charles Schwab’s chief global investment strategist Jeffrey Kleintop, are still not convinced that the measures announced this week will, in fact, work to reverse China’s fortunes, noting that “the jury is still out.” is deliberating.”
But while the measures taken so far may not solve the economy’s problems, the feeling that the patient has finally been taken to the hospital is enough to give investors hope, sending China’s stocks higher and they deviate to the right.
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