China’s Stimulus Measures: A Game Changer for the Economy

According to UBS, China’s recent stimulus measures could significantly alter its struggling economy. Amid slowing momentum and increasing deflationary pressures, Chinese leaders have committed to “necessary fiscal spending” and introduced stronger-than-expected monetary stimulus aimed at stabilizing the property market and enhancing growth.

UBS analysts note that this marks a significant policy shift, highlighting that this week’s interest rate cuts were more aggressive than anticipated, representing the most substantial easing since 2012.

Besides monetary stimulus, UBS forecasts further interventions in the property sector and fiscal stimulus focusing on long-term demand, including affordable housing and social welfare improvements.

Investor sentiment has reportedly surged since these announcements, with the CSI 300 and Hang Seng indices rising 14.5% and 13.5%, respectively. UBS sees potential for further market gains, estimating a rise of another high-single-digit percentage.

They remark, “This policy shift could be a game changer for Chinese risk assets, but execution and continuation are critical.” Despite a remarkable near 14% rise since the stimulus announcement, the future success hinges on the government’s capacity for effective execution.

A standout feature of the stimulus is its emphasis on capital markets. A CNY 500 billion swap facility was introduced to provide liquidity for brokers, funds, and insurance companies to facilitate stock purchases, with possibilities for additional support. Furthermore, the establishment of a special refinancing facility and exploration of a stock market stabilization fund reinforce the government’s dedication to boosting market confidence.

UBS remains optimistic about the growth prospects of Chinese internet leaders, state-owned enterprises in high-dividend sectors, and fields associated with structural trends such as AI. However, external factors, including the U.S. election, present potential risks.