Chinese Stock Market Rally Eases After Reaching Two-Year Highs Amid Stimulus Optimism

Chinese Stocks Rally Amid Stimulus Hopes, But Gains Begin to Cool

Chinese stocks surged to two-year highs in early October, driven by optimism surrounding Beijing's financial stimulus measures. The Shanghai Shenzhen CSI 300 and Shanghai Composite Index climbed between 16% and 20% since late September, fueled by expectations of more economic support from the Chinese government.

UBS Analysts Remain Optimistic Despite Cooling Momentum

Despite recent cooling in the market, UBS analysts continue to support an Overweight rating on Chinese stocks, noting that while valuations are no longer as low as a month ago, there is still value to be found. The brokerage highlighted the positive trajectory of Beijing’s fiscal policies, although implementation appears slower than expected.

Beijing’s Fiscal Stimulus Plans

China’s Ministry of Finance recently introduced a range of fiscal measures, including increased debt issuance, property market relief, and financial support for local governments. However, investors were left wanting more details on the timing and scope of these actions, particularly those aimed at boosting domestic consumption.

Investor Sentiment Shift: India vs. China

Interestingly, UBS pointed out that China’s rally has coincided with capital outflows from India, suggesting a shift in investor sentiment. UBS maintains an Underweight rating on India among emerging markets, hinting at potential ongoing capital reallocation to Chinese assets.

Outlook

While recent market gains have slowed, UBS expects further clarification on China’s fiscal policies in the coming months, which could provide additional support to local equities.