US Dollar Slips After PCE Inflation Data as Fed Rate Hike Expectations Stay Elevated 
SpaceX Eyes Starlink Mobile Phone Service to Challenge Verizon, AT&T, and T-Mobile 
Asian Stocks Slip as US-Iran Ceasefire Hopes Lift Oil, Dollar Strength Persists 
Wall Street Ends Mixed as Micron Surges, Apple Drops After Price Hikes 
China Sets 1.25% Overnight Reverse Repo Rate Below Market Expectations 
Canada Grants C$7 Million to Greenland Molybdenum Mine to Strengthen Critical Minerals Supply 
Morgan Stanley Sees Chinese Auto Market Recovery Gaining Momentum in Late Summer 
Gold Prices Rise Above $4,000 as Inflation Data and Weaker Dollar Boost Demand 
China Expands Export Controls, Adds 20 Japanese Companies to Restricted List 
Trump Threatens 100% Tariffs on Countries Imposing Digital Services Taxes on U.S. Tech Firms 
Global Financial Firms Shift Asia Expansion Focus to South Korea as China, India Face Caution 
Trump Urges Gasoline Retailers to Cut Prices to $2.50 Per Gallon, Warns of Legal Action 
Gold Prices Fall Below $4,000 as Strong Dollar, Fed Rate Hike Bets Weigh on Bullion 
Iran Attack in Strait of Hormuz Pushes Oil Prices Higher 
South Korea’s KOSPI Plunges as Apple Price Hikes and OpenAI IPO Delay Shake AI Chip Stocks 
Last week’s surge in Chinese equities marked the strongest weekly performance since 2008 for the Shanghai Shenzhen CSI 300 index, following stimulus measures introduced by the country’s central bank and regulators. The combination of monetary, fiscal, and direct market support has sparked optimism for a continued upward trajectory, though investors are questioning the sustainability of the rally and how best to capitalize on it.
Policy Follow-Through Will Be Key
According to Gavekal Dragonomics, the strength of the rally depends on whether policymakers deliver on their recent promises of fiscal and monetary support. Historically, China's stock markets have oscillated between significant gains and losses. Of the five major rallies in the last 20 years, three were driven by government stimulus, with trough-to-peak gains of 50-100%.
“The stimulus-driven rallies had trough-to-peak gains of 50-100%, so if Chinese equities are now starting another such rally, then there should still be plenty of upside even after the recent jump,” Gavekal said in a note.
Challenges and Modest Stimulus So Far
The bullish scenario hinges on rapid and decisive policy implementation, as China’s economy faces challenges such as weak labor markets, sluggish consumption, and declining export growth. The People’s Bank of China (PBOC) recently cut policy rates by 20 basis points, and expectations are high for a more robust fiscal package, potentially reaching RMB2 trillion in new debt.
New Market Mechanisms Introduced
The PBOC has also introduced a RMB500 billion swap facility for institutional investors and a RMB300 billion refinancing facility to support stock buybacks. These mechanisms aim to create a more aggressive "China put" in the market, offering additional support.
Market Driven by Expectations
Gavekal notes that much of the current rally is driven by shifting expectations rather than concrete stimulus. The central bank’s support for corporate buybacks could significantly increase market liquidity.
Investment Focus: Onshore and Cyclical Stocks
In terms of investment strategy, Gavekal suggests focusing on onshore stocks, which have historically outperformed offshore stocks by 20-40% during stimulus-driven rallies. Among onshore stocks, Shenzhen-listed equities have consistently outperformed Shanghai-listed ones.
Sector-wise, cyclical industries like industrials, materials, and consumer discretionary have seen outperformance by around 10% in previous rallies. Real estate developers are also positioned to benefit if housing policy changes are enacted, as recently hinted by the government.
