Asia Tea Time - Cup 72 ☕

This week I talk China’s big market moves and why we should try experimenting with our financial service providers. 

Macro in Asia

Chinese stocks surge on stimulus, seeing best week since 2008

China stocks finally caught a break, with multiple stimulus announcements from the Chinese government spurring a monster week of gains for the market.

China’s onshore CSI 300 Index, a collection of large cap A-shares, finished the week up 16% to post its best week since November 2008. Meanwhile, Hong Kong’s Hang Seng Index ended the week up 13%, recording its largest weekly advance since October 1998. 

Why it’s happening

• China’s government came out with a series of announcements to stem the “sea of red” for China’s markets and boost sentiment around its ailing economy. 

• On Tuesday, the government unveiled a RMB 800 billion (US$114 billion) credit facility that would support the country’s capital markets (i.e. stocks) by lending to insurers and fund managers in order for them to buy local stocks.

• China’s central bank, the People’s Bank of China (PBoC), also said it would cut its reserve requirement ratio (RRR) for banks by 50 basis points so the broader economy has more access to capital. 

• A reduction in the PBoC’s short-term seven-day reverse repo rate – from 1.7% to 1.5% – was also announced. That’s the bank’s main policy rate and it equated to an interest rate cut.  

Why it matters

• While China’s influence in emerging markets has been waning, it’s still a massive part of the global economy. That was in evidence as the boost in sentiment reverberated worldwide with both European and US stocks hitting all-time highs during the week.

• China’s position as the world’s second-largest economy – and its ambitious 5% GDP growth targets – rely heavily on adequate state stimulus as well as consumer sentiment starting to rebound.   

What’s next?

• Can the rally continue? Many market watchers are looking towards the key “Golden Week” holidays next week – when China’s stock markets will be closed – to see if consumer data and sentiment in China are likely to show any signs of recovery.

Tim’s Take 

It was a big week for Chinese stocks and the markets got a much-needed sugar rush after having been in the doldrums since early 2021. Remember, that was the peak of the Chinese tech bubble. 

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China’s CSI 300 Index finished up Friday along 4.5%, suggesting the optimism was still there from Tuesday’s series of stimulus announcements. 

Whether the momentum can keep going is anyone’s guess but some investors in China are naturally fearful that the rally may continue in Hong Kong in the upcoming week as the Chinese city’s stock exchange is only shut for one day (Tuesday 1 October).

Some of the most recognisable tech names listed in Hong Kong rallied the hardest during the week, with Alibaba up 18.1%, Tencent up 13% and Meituan Dianping advancing 21.5%. 

Even Chinese companies listed in the US soared, with Pinduoduo notching up a whopping 34.2% gain for the week.

There are three big questions. First, is the rally sustainable? There have been some false dawns in the past few years with Chinese stocks, the most notable being the post-Covid-19 reopening story. That optimism quickly fizzled out on the back of the weak Chinese consumer.

Second, is this the “big bazooka” that everyone has been awaiting from Chinese authorities? Most likely not. Though the lending fund is sizeable, it’s debatable whether you want the state providing capital to firm to buy stocks in the open market. Structurally, there are still questions to be answered.

Finally, is there a rotation going on with investors moving away from big SOE stocks that boast high yields, like banks, back towards the growthy, tech names? Although the shares of banks ended the week flat or down, only time will tell whether tech stocks in China can regain their shine. 

Overall, it’s a welcome rally for China’s beleaguered stocks but more will have to be seen – both from the stimulus front and the Chinese economy in terms of the data – to cement this as a true turnaround. 

Tim’s money tip of the week

Buying stocks or exchange-traded funds (ETFs) is largely an online affair now. That’s due to the explosion of choice among online brokerages out there.

While some of us may already be with a broker we are comfortable with, it never hurts to go out there and experiment with multiple brokers. That’s because you may actually stumble across a service that suits you and your preferences in a better fashion.

Depositing just a couple hundred dollars into each brokerage account could allow you to “test drive” what user interface, commission structure, and exchange rate service work best for you.

Remember that, ideally, you will be with a broker that has a strong reputation, reasonable pricing, and an international presence (if you see yourself moving overseas in future). Don’t be scared to try something new, though, as you may end up discovering something that works better for your own investing journey!