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Chinese Shares Surge on Stimulus Hopes Chinese Shares Surge on Stimulus Hopes
(about 2 hours later)
HONG KONG — Stock markets in mainland China soared more than 4 percent during Friday trading, outshining the generally positive performance of shares across the region amid hopes that the Chinese authorities are revving up efforts bolster the country’s flagging pace of growth. HONG KONG — Stock markets in mainland China roared ahead more than 4 percent during Friday trading amid hopes that the Chinese authorities are revving up efforts bolster stalling growth in the world’s second-biggest economy after the United States.
The Shanghai composite index saw its biggest single-day jump in months, rising at one point by 4.5 percent to its highest level since mid-August before giving up some of the gains to close 3.7 percent higher. The market in Shenzhen ended the day with a gain of 3.8 percent. The rally was set off by the announcement this week of what analysts said was effectively a new stimulus package worth more than $100 billion: the accelerated approval by the country’s top economic planning agency of dozens of large-scale state infrastructure projects designed to jump-start growth.
Both indices remain well below where they began the year, with evidence of China’s broad economic slowdown producing a marked slump in share prices since May. Between Wednesday and Thursday, Beijing policy makers announced approvals of 25 new subway lines and 13 new highway projects spanning thousands of kilometers. Together with several other large-scale projects related to airports, energy production and wastewater treatment plants, the total investment figure for all projects approved since April was 848 billion renminbi, or $134 billion, according to calculations by Zhiwei Zhang, the chief China economist at Nomura in Hong Kong.
But for now, at least, investors took heart from news that the authorities had approved a series of subway and road construction projects over the past week. “The decision for the Chinese government to intensively announce these projects over the past two days signals a significant change in its policy stance from the incremental and reactive approach to a more decisive and proactive approach,” Mr. Zhang said Friday in a research note.
China-watchers pointed out that it was unclear whether the approvals in fact represented new cash being pumped into the flagging construction sector, or whether they were part of plans that had been previously announced. Investors seized on the news on Friday, sending the Shanghai composite index to its biggest single-day jump in months. The index rose at one point by 4.5 percent to its highest level since mid-August before giving up some of the gains to close 3.7 percent higher. The market in Shenzhen ended the day with a gain of 3.8 percent. Both indices remain more than 15 percent below where they were 12 months ago, and the evidence of China’s broad economic slowdown has resulted in a steep sell-down in domestic shares since May.
In either case, the markets on Friday cheered the news as evidence that Beijing is stepping up efforts to bolster growth. At the same time, analysts pointed out that it was unclear whether the approvals in fact represented new cash being pumped into the flagging construction sector or whether they were part of plans that had been previously announced.
“The China market is very sentiment-driven, very driven by what the government is doing,” said Dariusz Kowalcyzk, an economist at Crédit Agricole in Hong Kong. In either case, the announcements were read as clear signals that Beijing is intent on stimulating growth.
Better than expected weekly jobs figures from the United States on Thursday and confirmation, also on Thursday, that the European Central Bank will buy vast amounts of government bonds in a bid to relieve investor pressure on troubled Eurozone economies, also lifted sentiment. “The China market is very sentiment-driven, very driven by what the government is doing,” said Dariusz Kowalczyk, an economist at Crédit Agricole in Hong Kong.
Stock markets across Asia reacted positively to those developments on Friday: Hong Kong’s Hang Seng Index closed 3.1 percent higher, while the benchmark index in South Korea added 2.6 percent, Taiwan’s Taiex gained 1.3 percent and the Straits Times index in Singapore rose 1 percent. Also lifting sentiment were better-than-expected weekly jobs figures from the United States on Thursday and confirmation, also on Thursday, that the European Central Bank will buy vast amounts of government bonds in a bid to relieve investor pressure on troubled Eurozone economies.
The sharp rally in mainland China, however, was mainly driven by the domestic news, which generally tends to play a much bigger part in shaping movements in the country’s still largely closed equity markets, Mr. Kowalczyk said. Stock markets across Asia reacted positively to those developments Friday: The Hang Seng index in Hong Kong closed 3.1 percent higher, while the Kospi index in South Korea added 2.6 percent, the Taiex in Taiwan gained 1.3 percent and the Straits Times index in Singapore rose 1 percent.
The sharp rally in mainland China was mainly driven by the domestic news, which generally tends to play a much bigger part in shaping movements in the country’s still largely closed equity markets, Mr. Kowalczyk said.
Beijing has been drip-feeding stimulus measures into the economy over the past few months in an effort to counteract the impact of slowing exports to Europe and to buoy demand at home.Beijing has been drip-feeding stimulus measures into the economy over the past few months in an effort to counteract the impact of slowing exports to Europe and to buoy demand at home.
Unlike during the aftermath of the financial crisis of 2008, China’s policymakers have recently taken a much more muted approach to spurring growth, apparently leery of producing another credit-driven investment binge of the kind that pushed up inflation and property prices during 2009 and 2010. Unlike during the aftermath of the financial crisis of 2008, China’s policy makers have recently taken a much more muted approach to encouraging growth, apparently leery of producing another credit-driven investment binge of the kind that pushed up inflation and property prices during 2009 and 2010.
This slow-motion approach to stimulus has worried many analysts and investors, who over the past two months have been eagerly awaiting more interest rate cuts and steps to facilitate additional bank lending.This slow-motion approach to stimulus has worried many analysts and investors, who over the past two months have been eagerly awaiting more interest rate cuts and steps to facilitate additional bank lending.
A batch of economic data due out Sunday is expected to show that the economy continued to loose speed in August. The data, Mr. Kowalczyk said, “will make few people happy.”A batch of economic data due out Sunday is expected to show that the economy continued to loose speed in August. The data, Mr. Kowalczyk said, “will make few people happy.”
Yao Wei, an economist at Societe Generale based in Hong Kong, wrote in a research note on Thursday: “Chinese economic data since the beginning of Q3 have been a series of disappointments,” referring to the July to September quarter. Yao Wei, an economist at Société Générale in Hong Kong, wrote in a research note Thursday: “Chinese economic data since the beginning of Q3 have been a series of disappointments,” referring to the July-to-September quarter.
“The authorities seem to be running a risky policy experiment to see how well the economy can hold up without any big dose of stimuli,” Ms. Yao added. “As the labor market deteriorates and credit risk rises, we think the central government should and will do more, albeit probably still incrementally.”“The authorities seem to be running a risky policy experiment to see how well the economy can hold up without any big dose of stimuli,” Ms. Yao added. “As the labor market deteriorates and credit risk rises, we think the central government should and will do more, albeit probably still incrementally.”