Chinese stocks experienced their most robust weekly performance over a decade, spurred by a $114 billion government stimulus. The CSI 300 index, which monitors the performance of major companies in Shanghai and Shenzhen, surged by 15.7% over the past week.
This marks the most significant one-week gain since November 2008, when China implemented similar measures during the global financial crisis. This significant boost in stock market activity has also had ripple effects, lifting European stocks and influencing global commodity prices. The stimulus is part of broader efforts by Chinese leaders to stabilize the domestic economy, address ongoing issues in the property sector, and drive consumer spending to meet the country’s 5% economic growth target for the year.
$114 billion liquidity boost
The People’s Bank of China announced an Rmb800bn ($114bn) lending facility to inject liquidity into the market. The goal is to help companies repurchase their shares and enable non-bank financial institutions, including insurers, to invest in local stocks.
The government aims to maintain momentum in the financial markets by providing ample liquidity. The CSI 300 index jumped 4.5% on Friday after the announcement. This has led to a surge in mainland markets and lifted the Hang Seng index in Hong Kong, which saw a 13% rise over the past week—its most significant since the 1998 Asian financial crisis.
Global impact on markets
The effects of China’s stimulus have extended beyond its borders. European luxury brands, which rely heavily on Chinese consumers, welcomed the move, anticipating an uptick in domestic spending. Wall Street has also shown positive reactions, with the S&P 500 closing at record highs multiple times this week. Investors are increasingly optimistic about a potential boost in global demand, particularly as the Federal Reserve’s interest rate cuts weaken the dollar, making emerging markets like China more attractive.
However, foreign investors’ access to Chinese stocks remains restricted. In August, Chinese regulators limited the daily data flow from the Hong Kong Stock Connect program, which tracks foreign investment activity in mainland markets.
Commodity prices surge, except for oil
The injection of liquidity into China’s economy is also driving up global commodity prices, particularly in the metals sector. Copper, aluminum, and zinc have all recorded gains, with copper rising more than 5% since Tuesday to break the $10,000 per tonne mark for the first time in three months. Iron ore, which had recently hit a two-year low, has also rebounded as steel demand strengthens.
Oil, however, has yet to follow this upward trend. News that Saudi Arabia might increase oil output has dampened any potential price gains in the energy sector, keeping prices steady despite the broader rally in commodities. As global markets remain focused on China’s next steps, all eyes are on the country’s ongoing efforts to balance market stability with long-term economic growth.