Chinese Stimulus Hopes: A Second Attempt for the Economy

Investors were recently disappointed by China's policymakers as additional monetary stimulus measures did not materialize. However, the upcoming weekend could bring new momentum. The Chinese Ministry of Finance is planning a press conference for Saturday, where fiscal stimuli amounting to up to 2 trillion yuan, approximately 282 billion dollars, could be announced. These measures aim to support the still struggling economy, which is facing real estate issues. Jim Reid, a strategist at Deutsche Bank, highlighted in a report that the market expects a package valued between 1.5 and 2 trillion yuan. It will be crucial to see if the actual announcement meets expectations after recent weeks of tension and uncertainty. Previously, announcements from the Chinese central bank about interest rate cuts had sparked investor euphoria, which faded last week. The return of investors after a holiday week brought back sobriety, given the lack of fiscal support. Chinese stocks, such as the China CSI 300 and the Shanghai Composite, suffered significant losses, as did the Hang Seng Index in Hong Kong. ETF markets related to China also recorded strong declines this week. Deutsche Bank estimates the total volume of fiscal and monetary measures to be up to 7.5 trillion yuan, equivalent to about 6% of GDP in 2024. A fiscal package of 2 trillion yuan would be comparable to measures taken to combat the pandemic in 2020. Meanwhile, the stimulus package could also boost European industries heavily dependent on Chinese consumers, such as luxury goods manufacturers. Kristina Hooper of Invesco points out that globally, the metals market, particularly copper, will be monitored as an indicator of the perception of the stimulus package. More stable copper prices could be a positive signal for the macroeconomic situation in the fourth quarter of 2024.