HSBC Raises China Index Targets by 20%, Citing “Unprecedented Policy Pivot”

Investors’ confidence in Chinese equities has improved thanks to the introduction of a series of new stimulus measures last month, as noted by analysts at HSBC.

In their client communication, the analysts reported raising their year-end targets for major Chinese stock indices by an average of around 20%, indicating a potential upside of 14%-17% in the final quarter of 2024.

In September, Chinese officials announced a comprehensive set of policies, including significant cuts to interest rates and reductions in current mortgage costs.

The People’s Bank of China (PBOC) introduced a swap program with an initial allocation of 500 billion yuan aimed at facilitating easier funding access for investment funds, insurers, and brokers to purchase stocks. Additionally, the PBOC announced it would offer up to 300 billion yuan in low-interest loans to commercial banks, assisting them in funding share purchases and buybacks by listed companies.

Following this announcement, Chinese stocks experienced a notable increase. On September 30, the last trading day before the Golden Week holidays from October 1 to October 7, equities surged, marking their largest single-day gain in 16 years.

HSBC analysts remarked that this significant shift in policy has addressed many of the key challenges facing both the Chinese economy and its stock market. They highlighted a fundamental change in the approach taken by policymakers, particularly the central bank.

The analysts believe that regulators are likely to introduce further measures to maintain this positive momentum. They noted that improving risk appetite and creating a wealth effect are just the initial steps, with the longer-term goals aiming for economic revitalization and structural reforms.

Market participants have also started to expect an additional 1 trillion to 2 trillion yuan in fiscal stimulus for the fourth quarter, along with an annual projection of 4 trillion to 5 trillion yuan starting in 2025.

However, on Tuesday, expectations for substantial new fiscal support were tempered when China’s National Development and Reform Commission, the state planner, refrained from announcing such measures during a closely watched press conference.

As a result, Chinese stocks retraced some of the significant gains made when markets reopened after the Golden Week holiday.