China Announces Financial Stimulus, But Investors Await More Details

China’s much-anticipated financial stimulus announcement on Saturday aimed to revive its slowing economy, but investors were left wanting more concrete details. While Finance Minister Lan Foan reiterated Beijing's commitment to boosting economic growth, the lack of specifics disappointed those hoping for clear measures to stabilize the world’s second-largest economy and stock market.

China’s Economic Stimulus: Promises Without Precision

During the press conference, Lan Foan outlined plans for increasing government debt, providing consumer support, and aiding the troubled property sector. However, the absence of specific figures or a clear timeline left investors uncertain about the impact of these measures.

“The fiscal stimulus announcement was weaker than expected. There’s no timetable, no financial commitment, and no clear plan on how the funds will be utilized,” commented Huang Yan, investment manager at Shanghai QiuYang Capital Co. in Shanghai.

Investors were anticipating a stimulus package valued between 2 trillion and 10 trillion yuan ($283 billion to $1.4 trillion), but the conference offered no such clarity. In contrast, previous reports from Reuters and Bloomberg had speculated that China might issue special sovereign bonds worth 2 trillion yuan or inject up to 1 trillion yuan into its state banks. None of these details were confirmed during the announcement.

Stock Market Reaction: Will the Rally Continue?

China’s stock market had responded positively to the People's Bank of China's (PBOC) earlier stimulus moves, with the CSI300 Index soaring by 16% over three weeks. However, investor enthusiasm is beginning to wane amid concerns that the recent policies may not be sufficient to revive the struggling economy.

“If this is the extent of fiscal policy, the current stock market rally could lose momentum,” Huang noted after the briefing.

HSBC's Chief Asia Economist, Fred Neumann, also advised patience, explaining that more specific financial measures might only be revealed later this month when China's National People's Congress meets to review and approve formal proposals.

Consumer Confidence and Credit Demand

A key challenge for China’s economy remains the slump in consumer confidence and the ongoing struggles in the property sector. The Communist Party’s long-term efforts to reduce debt and combat corruption have contributed to these issues, but the hope for significant government intervention has driven both foreign and domestic investors to pump money into Chinese stocks.

Despite this, market analysts remain cautious. Jason Bedford, a former China analyst at Bridgewater and UBS, pointed out that for China’s economy to recover, there must be an increase in credit demand, which can only happen with adequate fiscal support.

Outlook for Investors: Cautious Optimism

While investors are eager for details on how much Beijing will spend, the current lack of information has tempered market enthusiasm. Nevertheless, the Shanghai Composite Index is up 12% since stimulus measures were first announced in late September, although property and tourism stocks continue to underperform, reflecting lingering doubts about the extent of government support.

Global commodities, including iron ore, industrial metals, and oil, have also seen volatility amid hopes that China’s stimulus will boost sluggish demand.

Matthew Haupt, portfolio manager at Wilson Asset Management in Sydney, noted, “Some investors may be disappointed by the lack of headline-grabbing numbers, but continued efforts to stabilize the economy and maintain growth could encourage more significant capital flows.”

Foreign Investment Surge

Despite the uncertainties, China has seen a surge in foreign investments. According to LSEG Lipper data, overseas China funds received a net inflow of $13.91 billion since September 24, bringing the total for 2024 to $54.34 billion. Much of this has been channeled into exchange-traded funds (ETFs), although mutual funds still report net outflows of $11.77 billion for the year.

Bedford remains optimistic about the potential for a sustained stock market rally, driven by increased household savings and corporate buybacks. “We are in the early stages of a rally fueled by Chinese households. While there’s a risk of miscommunication or policy missteps, the long-term outlook remains strong,” he concluded.