After the Fed Put, the China Put Follows: Barclays

Equity markets have recently experienced upward momentum, with cyclical stocks outperforming their defensive counterparts for the first time since May. This rally followed a significant reduction of 50 basis points in interest rates by the Federal Reserve, reflecting a strong dedication to fostering economic growth and enhancing optimism for a successful “soft landing.”

Meanwhile, China introduced a series of unexpected stimulus measures aimed at bolstering its economy. These measures included interest rate cuts, relaxed mortgage down payment requirements, and increased liquidity support for the stock market.

According to strategists at Barclays, this coordinated approach has improved market sentiment towards Chinese equities and related markets, particularly in Europe. While the long-term implications for China’s structural growth remain uncertain, current sentiment is optimistic. Economists are examining the potential effects of a proposed CNY 5 trillion property stabilization fund and a CNY 4 trillion consumption/local government subsidy over the next two years, which could add roughly 1 percentage point to China’s gross domestic product (GDP).

Barclays also highlighted that the prospect of additional stimulus, should growth falter, could fuel a sense of fear of missing out (FOMO) among investors. This week, the Shanghai Shenzhen CSI 300, China’s onshore equity benchmark, soared over 15%, marking its largest weekly gain since the global financial crisis. Concurrently, the NASDAQ Golden Dragon China Index, which follows Chinese stocks traded in the U.S., rose approximately 18%.

In European equity markets, defensive positioning remains dominant; thus, a shift toward more risk-taking could present challenges. Barclays emphasized the importance of remaining cautious during this rally, especially considering the substantial tariff risks associated with a potential Trump presidency.