The newly-announced measures mark a significant tonal shift in Chinese monetary policy
Shares of Alibaba (NYSE:BABA), JD.com (NASDAQ:JD), Baidu (NASDAQ:BIDU), and other Chinese stocks rallied sharply Monday morning after the Chinese government announced stimulus measures to create a more business-friendly regime.
A readout of a Politburo meeting from early Monday morning promised a “more proactive fiscal policy and an appropriately loose monetary policy.” The language used in the reading contrasts markedly with China’s typically “prudent” monetary policy.
In a commentary, Stephen Innes of SPI Asset Management seemed to suggest that the Politburo’s tone shift may be a response to U.S. President-elect Donald Trump’s tariff threats against China.
Similarly, the European Union officially voted to impose tariffs as high as 45% on Chinese EVs earlier this year.
“This marks a significant recalibration in their approach, aiming to cushion the anticipated economic shocks [from higher tariffs]”, Innes posited.
In addition, the Politburo vowed to “stabilize” China’s “property and stock markets”.
Zhaopeng Xing, senior China strategist at ANZ Bank China Co Ltd., called the wording of the Politburo’s statement’s “unprecedented”, arguing that it “points to strong fiscal expansion, [a] big rate cut and asset buying”.
A troubled housing market, along with the threat of a potential trade war with the U.S. after Trump takes office, has pressured Chinese stocks in late 2024.
However, the prospect of state intervention in China’s troubled economy lifted stock traders’ spirits on Monday. The iShares China Large-Cap ETF (NYSEARCA:FXI), a fairly reliable gauge of China’s large-cap stocks, jumped 6% in premarket trading.
As the old saying goes, a rising tide lifts all boats. Thus, U.S.-listed shares of well-known China-based companies Alibaba, JD.com, and Baidu soared 6% to 8% in early-morning Monday trading.
Whether the market’s relief rally is premature remains to be seen, with Trump threatening to impose tariffs of 60% or more on Chinese product imports into the U.S., an anticipated rebound in China’s economy will require confirmation throughout the coming year.
