(Bloomberg) — Chinese stocks extended gains after a volatile morning session, suggesting the government’s budget support plan has done enough to keep the rally going for now.
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The CSI 300 Index rose as much as 2.4% after previously swinging between gains and losses. The worst week since the end of July ended on Friday. A Bloomberg Intelligence gauge of Chinese developers rose more than 3%.
The price movements underline the cautious optimism as traders await more details on the fiscal measures. Finance Minister Lan Fo’an promised new steps to support the real estate sector and hinted at bigger government borrowing during Saturday’s briefing, but failed to provide a headline figure for the dollar. Boosted fiscal spending is believed to be key to continuing the stock market rally fueled by the central bank’s stimulus measures in late September.
“Despite the absence of major fiscal stimulus numbers, the MOF press conference was still an upside surprise for us,” HSBC Holdings Plc economists including Jing Liu wrote in a note. “It looks very likely that the policy pivot will continue, with increasing risk appetite creating a wealth effect on both the equity and property markets.”
An index of Chinese stocks listed in Hong Kong gained, reversing a 2.7% decline.
Data on Sunday showed China’s deflationary problems became more entrenched in September, with consumer prices still weak and factory prices continuing to fall. Meanwhile, officials from several Chinese departments pledged at a new briefing on Monday to step up policy support for companies.
‘Covered upside down’
Local governments may use special bonds to buy unsold homes, Lan and his deputies said at the Saturday briefing, without specifying an amount. Lan hinted there is room for issuing more government bonds and pledged to ease the debt burden of local governments, signaling a possible rare budget revision in coming weeks.
Ahead of the weekend, investors and analysts polled by Bloomberg had expected China to deploy as much as 2 trillion yuan ($283 billion) in new fiscal stimulus on Saturday, including potential subsidies, consumption checks and financial support for families with children.
Market volatility had risen in the run-up to the MOF briefing, with the CSI 300 Index down 3.3% last week. As the rally cools, concerns may grow that the latest upswing could be another false dawn. The market has fallen into a stop-start cycle of gains and losses a few times before, as Beijing’s piecemeal stimulus approach provided only short recoveries.
“My guess is that the November US elections and the FOMC could delay major stimulus until December or later, and investors could stay away before that date and the third quarter results, so upside potential could be a bit limited for now ,” said Xin-Yao Ng, an investor. director at abrdn Asia Ltd.
–With help from John Cheng.
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