The Chinese government has introduced a comprehensive support package that has had a significant impact on financial markets. This initiative includes various measures aimed at boosting housing demand and addressing the surplus inventory burdening developers. As a result, Chinese stocks experienced a notable rally, and commodity prices, especially copper, reached record highs.
The core of the government’s strategy involves relaxing mortgage regulations and encouraging local governments to buy unsold properties. This reflects Beijing’s dedication to reducing the housing sector’s negative impact on economic growth. Key components of the package include lower down-payment requirements for homebuyers – 15% for first-time buyers and 25% for second-home purchases. To support these efforts, the central bank has allocated 300 billion yuan ($42 billion) in funding to assist government-backed entities in acquiring excess properties for conversion into affordable housing.
Additionally, the start of China’s special treasury bond auction marked an essential step in the broader stimulus program. This move is expected to inject much-needed liquidity into the economy, enhancing financial stability.
Simultaneously released economic indicators provided a mixed yet cautiously optimistic outlook. April 2024 saw a 6.7% year-on-year increase in China’s industrial production, surpassing market expectations and up from the previous month’s 4.5% growth. While retail sales growth was slower, the unemployment rate in April dropped to 5.0%, the lowest since November 2023, and better than anticipated.
Investor sentiment responded positively to the government’s actions, with the Shanghai Composite Index rising by 1% to close at 3,154 and the Shenzhen Component Index increasing by 1.1% to 9,709. Real estate stocks, especially Greenland Holdings, Poly Real Estate, and China Fortune, saw significant gains with their shares increasing by over 10%.
The Hang Seng Index also saw growth, climbing by 0.91% to its highest point in nine and a half months. Leading this upsurge were Country Garden Services Holdings and Ping An Insurance, which saw gains of 9% and 5%, respectively. In the U.S. market, Chinese American Depository Receipts (ADR) experienced modest gains, with Alibaba Group Holdings Ltd. and PDD Holdings Inc. rising by 0.5% and 0.9%, respectively.
Tech stocks also benefited from the positive news, with the KraneShares CSI China Internet ETF rising by 2.7%, reaching its highest point since February 2023. Meanwhile, copper prices surged by nearly 3% to $5 per pound, indicating its sensitivity to Chinese economic trends and marking its strongest performance since early April.
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