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China's $11 trillion stock market is staging a steady resurgence

China's $11 Trillion Stock Market Stages a Steady Resurgence Amid Policy Support and Economic Recovery

China's vast stock market, boasting a capitalization of around $11 trillion, is experiencing a notable and steady resurgence after a prolonged period of volatility and downturns. This revival comes as a welcome development for investors and policymakers alike, signaling potential stability in the world's second-largest economy. The benchmark CSI 300 Index, which tracks major stocks on the Shanghai and Shenzhen exchanges, has climbed significantly in recent months, posting gains that outpace many global peers. For instance, over the past quarter, the index has risen by more than 20%, recovering from earlier lows that were exacerbated by strict COVID-19 lockdowns, regulatory crackdowns on tech giants, and a sluggish property sector. This uptick reflects a broader shift in market sentiment, driven by a combination of proactive government interventions, improving macroeconomic indicators, and renewed investor confidence.

At the heart of this resurgence are Beijing's concerted efforts to bolster economic growth and stabilize financial markets. The Chinese government has rolled out a series of stimulus measures, including interest rate cuts by the People's Bank of China (PBOC), reductions in reserve requirements for banks to free up lending, and targeted support for key industries. These policies aim to counteract the slowdown caused by the real estate crisis, where developers like Evergrande have faced massive debt burdens, leading to a slump in property sales and construction activity. Despite these headwinds, recent data shows signs of stabilization: home prices in major cities have begun to edge up, and infrastructure spending has accelerated, fueled by government-backed projects in areas like high-speed rail and renewable energy. Moreover, fiscal stimulus packages, including tax rebates and subsidies for consumers, are expected to stimulate domestic demand, which has been lackluster due to weak consumer spending post-pandemic.

The technology sector, once battered by regulatory scrutiny, is emerging as a key driver of the market's recovery. Companies in semiconductors, electric vehicles (EVs), and artificial intelligence are benefiting from state incentives and a push towards self-sufficiency in critical technologies amid U.S.-China trade tensions. For example, EV giants like BYD and battery producers have seen their stock prices soar, supported by surging global demand for green energy solutions. This sectoral strength is complemented by robust performances in manufacturing and exports, where China's factories have ramped up production to meet international orders, even as global supply chains face disruptions. Economic indicators further underscore this positive trajectory: manufacturing PMI has returned to expansion territory, indicating growing factory activity, while retail sales and industrial output have shown sequential improvements.

Investor behavior is also shifting in favor of this resurgence. Domestic retail investors, who dominate China's stock market, are returning in droves, encouraged by state media campaigns promoting long-term investment and the allure of undervalued stocks. Foreign capital, which had fled amid earlier uncertainties, is trickling back. Data from global fund trackers reveals increased inflows into Chinese equities through channels like the Stock Connect program, linking mainland markets with Hong Kong. Hedge funds and institutional investors are particularly eyeing opportunities in undervalued blue-chip stocks, with some analysts predicting that the CSI 300 could extend its rally if stimulus measures gain further traction. However, this optimism is tempered by cautions from market observers who note that valuations remain attractive but not without risks—such as potential escalations in geopolitical frictions or unexpected policy reversals.

Looking ahead, the sustainability of this resurgence hinges on several factors. Beijing's commitment to achieving its annual GDP growth target—around 5%—will be crucial, with upcoming policy meetings expected to unveil more details on fiscal and monetary easing. Economists point to the need for deeper reforms in the property sector to restore confidence, including measures to address unsold inventory and support homebuyers. Additionally, external pressures like U.S. interest rate decisions and trade policies could influence capital flows. Despite these challenges, the market's steady climb suggests a departure from the boom-and-bust cycles of the past, potentially marking the beginning of a more mature phase for China's equities.

This recovery is not isolated; it aligns with broader Asian market trends, where indices in Hong Kong and Taiwan have also rebounded, partly due to spillover effects from China's stimulus. The Hang Seng Index, for instance, has mirrored some of the gains in mainland stocks, buoyed by tech listings and cross-border investments. Analysts from firms like Goldman Sachs and JPMorgan have upgraded their outlooks on Chinese stocks, citing the effectiveness of recent policies in averting a deeper slowdown. They argue that with inflation under control and currency stability maintained by the PBOC, there's room for further monetary loosening without sparking asset bubbles.

Yet, the path forward is not without hurdles. The ongoing property slump remains a drag, with new home sales still contracting year-on-year, though at a slower pace. Youth unemployment, hovering at elevated levels, poses risks to consumer spending, while global economic uncertainties—such as recessions in Europe or slowdowns in the U.S.—could dampen export demand. Nevertheless, the market's resilience is evident in the performance of small-cap stocks and emerging sectors like biotechnology and new energy, which are attracting venture capital and driving innovation-led growth.

In summary, China's $11 trillion stock market is charting a course towards steady resurgence, underpinned by policy agility and economic green shoots. This development not only bolsters domestic stability but also has implications for global investors seeking diversification amid volatile Western markets. As Beijing navigates these dynamics, the coming months will test whether this rally can evolve into a sustained bull run, potentially reshaping perceptions of China's economic prowess on the world stage. (Word count: 842)

Read the Full moneycontrol.com Article at:
[ https://www.moneycontrol.com/news/business/markets/china-s-11-trillion-stock-market-is-staging-a-steady-resurgence-13447545.html ]