Today’s News

China stocks surged to two-year highs on Tuesday as trading resumed following a week-long holiday, driven by investor optimism over new stimulus measures aimed at supporting the economy. 

The blue-chip CSI300 index jumped 10% to its highest level since mid-2022, while the Shanghai Composite rose 9.7%, reaching its best performance since December 2021. 

Before the break, China had introduced its most aggressive stimulus measures since the pandemic, fueling a 25% gain in the CSI300 over five sessions. Heavy buying activity caused turnover to skyrocket, straining brokers and trading systems. Both the CSI300 and the Shanghai Composite saw their biggest gains since 2008 last Monday. 

Meanwhile, the yuan weakened sharply to 7.0502 per dollar, and five-year bond futures fell to their lowest point since July. Hong Kong’s Hang Seng index, which reached 2.5-year highs on Monday, dropped 2.8%. 

A press conference by the National Development and Reform Commission scheduled for later in the day is expected to provide more details on the stimulus measures driving the current market rally. Authorities have already cut rates and signaled fiscal support to boost an economy that, by Chinese standards, is underperforming. 

Market Rally Fueled by Stimulus, But Analysts Urge Caution 

Hedge fund manager David Tepper commented before the break that the stimulus moves were strong enough to make him “buy everything” in China. However, some analysts are urging caution after the substantial gains. 

“China’s weighting in the MSCI EM Index rose from 24% in August to 30% now, and its continued outperformance may lead to a self-reinforcing ‘pain trade’ before the year’s end,” Bank of America analysts wrote in a note on Monday. 

They also warned that the “buy everything” phase might be nearing its end, with factors like market momentum, fiscal support, earnings, the U.S. election, and further policy decisions influencing the market’s outlook.  

Bank of America analysts suggested that consumer, property, and broker stocks could face profit-taking, while they preferred exposure to big-cap internet companies and high-yield state-owned enterprises (SOEs).

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