Chinese Stocks on the Rise: Government Raises Hopes for New Stimuli

Chinese stocks rebounded on Thursday after the announcement of an upcoming press conference with Finance Minister Lan Fo'an fueled expectations of additional stimuli. In volatile trading, the Chinese benchmark index CSI 300 rose by nearly 3 percent, after falling by 7 percent the previous day, marking its first loss after eleven consecutive positive sessions. Meanwhile, the Hang Seng Index in Hong Kong increased by 4.2 percent, having sharply declined on Tuesday and Wednesday. The CSI 300 has gained more than 30 percent since the end of September, following the announcement of a stimulus package by the Chinese government to boost economic confidence. However, the rally began to falter this week as investors questioned the government's plans to stimulate the economy and capital markets. "In the past two weeks, the sentiment was: buy anything related to China," noted Richard Tang from Julius Baer, adding that the next phase of the rally will begin with slower gains and higher volatility, with a renewed focus on fundamentals such as earnings and valuations. On Thursday, the Chinese central bank introduced a new instrument designed to make it easier for domestic financial companies to purchase stocks. This measure aims to stabilize the market and enhance liquidity. Non-banks are allowed to borrow funds from the Chinese central bank to buy stocks, with bonds, stocks, or exchange-traded funds serving as collateral. This facility enables eligible securities firms, funds, and insurance companies to pledge ETFs, bonds, or components of the CSI 300 Index against more liquid assets such as government bonds and central bank bills. The volume of around 500 billion yuan (approximately 70 billion US dollars) can be increased depending on market conditions, according to the central bank. The goal is to enhance inherent stability and promote the healthy development of the capital markets. Experts compare this instrument to the Term Securities Lending Facility of the U.S. Federal Reserve, which implemented similar measures during the financial crisis in 2008 and the pandemic in 2020.