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China Market Update: Reuters’ RMB 10 Trillion Stimulus Article Lifts US-Listed China Stocks Pre-Market
Brendan Ahern
Senior Contributor
I am the CIO of KraneShares, a China-focused ETF provider.
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Oct 29, 2024,10:02am EDT
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Key News
Asian equities were mixed overnight despite another strong US dollar move against regional currencies, as Mainland China, Taiwan, and the Philippines underperformed.
The most important news item occurred after the market close as Reuters reported the NPC will approve RMB 10 trillion ($1.4 trillion) of fiscal stimulus, the equivalent to 8% of GDP via special bond issuance, sending US-China ADRs higher pre-market. The bond issuance would:
- Be spread out over three years with RMB 6 trillion of “the proceeds primarily being used to help local governments address off-the-books debt risk”
- “4 trillion worth of special-purpose bonds for idle land and property purchases over the next five years”
- A separate RMB 1 trillion “as a consumption boost including trade-in and renewal of consumer goods”
- “Another trillion to bolster banks’ balance sheets"
The Reuters article is based upon “two sources with knowledge of the matter,” though they cautioned that “the plans are not finalized and remain subject to changes.” Prior to the Reuters release, Mainland media source Yicai wrote today about the Ministry of Finance's plans to address “local government hidden debts” with provinces coming clean in order to garner access to funds. Citing the October 12th press conference of Finance Minister Lan Fo’an, who stated the government “is planning a one-off increase in the local government debt ceiling to support the replacement of hidden debt through the issuance of more government bonds,” which requires raising the debt ceiling, which requires the NPC.
Ultimately we won’t know definitively until November 8th when the NPC concludes. The rally is most inconvenient for foreign investors and strategists who remain on the sidelines/underweight China due to the US election. They likely have to reconsider as Mainland China and Hong Kong’s outperformance of US equities, emerging markets, and Asia ex Japan is at least double digits/+10% based on the Hang Seng or Shanghai, but more than 25% if using the Hang Seng Tech or Shenzhen since the end of August. One investor that continues to benefit is Mainland investors, who bought $869 million of Hong Kong stocks today via Southbound Stock Connect.