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Chinese stocks have been experiencing a real surge in global stock markets in recent months. The renewed momentum is largely attributed to Beijing’s recovery initiatives aimed at pulling the Chinese economy out of a slowdown that has worried many investors. Behind this sudden enthusiasm, however, questions remain about the sustainability of this improvement. Let’s decipher the reasons behind this surge in Chinese stocks and what it means for investors.
A cocktail of recovery measures to revive markets
The People’s Bank of China (PBOC) has recently taken a number of policy decisions to support the economy, including lowering interest rates and reducing bank reserve requirements.
This initiative, which is particularly well received in the markets, aims to free up liquidity and facilitate access to credit for businesses and households.
At the same time, key cities such as Shanghai and Shenzhen announced the immediate lifting of restrictions on property purchases, a major step to restore momentum to the struggling real estate sector.
The announcement, along with the prospect of new tax measures, immediately sparked interest from investors, especially those focused on the Chinese market, and caused a significant increase in the quotations of Chinese companies listed abroad, especially in the United States.
The results were not long in coming: shares of e-commerce giants such as Alibaba, JD.com and PDD Holdings quickly gained value on the stock market.
In the new technology sector, electric vehicle manufacturer Nio and video game platform Bilibili also recorded notable performances.
The tech sector is on the rise, but doubts remain
In addition to the shares of large companies, exchange-traded funds (ETFs) focused on the Chinese market also gained altitude.
The iShares MSCI China ETF was a big gainer, while the KraneShares CSI China Internet ETF, which specializes in technology companies, saw shares rise nearly 2%.
The increases confirm renewed confidence in Chinese technology, a key sector that has been weighed down by recent restrictive regulations from Beijing.
However, despite this improvement, there are still doubts. Many experts are really interested in the depth and duration of this recovery effect.
China faces significant structural challenges: rising deflationary pressures, domestic demand struggling to recover and a real estate sector that continues to slow despite recent measures.
If the current gains in Chinese stocks are undeniable, some analysts point to the tactical nature of these gains.
In fact, investors could be cautious in the medium term and wait for tangible evidence of a more sustained economic recovery before making a full commitment.
Between hope and caution
The excitement surrounding Chinese stocks clearly illustrates the immediate effect that targeted stimulus measures can have.
However, this optimism must be tempered by a closer reading of the country’s economic fundamentals.
China’s government may have pledged to hit its 5% growth target this year, but many hurdles remain.
China’s economy will not recover overnight, and the effects of current support policies may be limited in time.
BCA Research analysts are clear about this: even if tactical gains are likely in the stock market, economic uncertainty is still looming.
Chinese stocks have certainly performed well in recent days, but investors could adopt a more wait-and-see strategy in the long term. The next few months will be crucial to see if the current momentum can turn into an underlying trend. Meanwhile, Visa and Mastercard slow down innovation by betting millions!
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Fascinated by Bitcoin since 2017, Evariste continued to research the topic. If his first interest was trading, now he is actively trying to understand all the developments focused on cryptocurrencies. As an editor, he strives to consistently deliver high-quality work that reflects the state of the industry as a whole.
DISCLAIMER OF LIABILITY
The comments and opinions expressed in this article are solely those of the author and should not be considered investment advice. Before making any investment decision, do your own research.