What is going on here?
On October 29, 2024, the energy and real estate sectors dragged the market, and Chinese stocks suffered, with the CSI300 index down 0.6% and the Shanghai Composite Index down 0.7%. On the other hand, the Hong Kong Hang Seng Index remained steady.
What does this mean?
The Chinese market is under pressure from the energy and real estate sectors, which declined by 1.8% and 2.1%, respectively, weighing on market sentiment. Still, Chinese and Hong Kong tech stocks were a ray of hope, rising 1.2% and 0.9%. Investors are now eyeing the leadership meeting from November 4th to 8th in hopes of significant fiscal stimulus. There has been talk of possible additional government bond issuance, with Nomura’s chief China economist saying that depending on the U.S. election results, the country could see a 1.0 trillion yuan boost and the fiscal deficit ratio could expand beyond 3% of GDP. There is some speculation that.
Why should we care?
For the market: Rebalancing is on the horizon.
As investors await the leadership meeting, they are keeping an eye on fiscal stimulus that could rebalance the scales. If China opts for significant fiscal spending, energy and real estate stocks could regain interest. Market participants should pay close attention to the outcome of the meeting, as it could determine changes in the sector in the near term, especially if an increase in fiscal activity is expected.
The big picture: Demographic influences.
Beyond its immediate fiscal problems, China is grappling with long-term challenges such as a declining birthrate. The government’s new measures aim to improve family planning and signal an effort to maintain economic vitality amid changing demographics. These efforts highlight China’s strategy to not only promote growth through fiscal policy, but also address demographic trends that will influence its future growth trajectory.
