China’s stock market is now in bull territory as stimulus package drives extended rally

Buoyed by last week’s stimulus package, Chinese equities are on a tear: Chinese equities had their best day in 16 years yesterday, after “fevered trading” saw the country hitting CNY 1 tn-worth of shares traded in the shortest amount of time in its history. Chinese markets closed up 8% yesterday and will now be closed for a weeklong holiday until next Tuesday as the country celebrates its 7-day “Golden Week” of National Day holidays.

In Shenzhen, the ChiNext index — which is tech-heavy — closed up 15.4% yesterday, marking its strongest single-day performance since it was established in 2010. Reuters, Bloomberg, the Financial Times, and CNBC have the story.

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The single-day performance came as investors continue to ride the wave of momentum from last week’s stimulus announcement, with China’s central bank announcing it is rolling out broad monetary stimulus measures to jumpstart the country’s faltering growth, including slashing a key short-term interest rate and lowering the reserve requirement ratio (RRR) to its lowest point since 2018. Critically, the stimulus package also sought to address China’s flagging property market by reducing borrowing costs on USD 5.3 tn worth of mortgages and lowering down-payment requirements for second homes.

Bull market territory? Yesterday’s jump extended a rally that now puts China’s CSI300 blue-chip index nearly 30% above its lowest performance in February, with the majority of that jump — around 25% — happening in the past week since the rollout of the stimulus package. Although in percentage terms, the stock market’s performance is in bull market territory, some analysts are hesitant to characterize it as a bull market because such a large portion of the gains materialized in such a small period of time.

Not having as good of a time: Quant funds. China’s quant funds are struggling to keep up with margin calls as the equity rally puts pressure on their liquidity, according to Bloomberg. “When the surge in index futures exceeded gains in the underlying stocks on Friday, it imposed paper losses on some quants’ hedging positions … When brokerages closed the short positions, they pushed the index futures further up along with investors [expecting] a further rally, worsening the short squeeze,” the business information service said, citing an asset management player.

MARKETS THIS MORNING-

It’s holiday season: With South Korean, Hong Kong, and Chinese markets all closed for holidays, Japan’s Nikkei is alone in rebounding 1.7% after slipping in trading yesterday. Mainland Chinese markets are closed for the entire week, but the rest will be back to work tomorrow.

Meanwhile, Wall Street futures are flat after the S&P 500’s record close for September.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.4% yesterday on turnover of SAR 8.7 bn. The index is up 2.2% YTD.

In the green: Al Baha (+10.0%), Chubb (+5.4%) and Teco (+5.2%).

In the red: Bupa Arabia (-5.8%), Sefico (-4.4%) and Savola Group (-3.7%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.7% yesterday on turnover of SAR 52.5 mn. The index is up 3.7% YTD.

In the green: NGDC (+9.7%), Edarat (+7.3%) and Nofoth (+5.9%).

In the red: Alqemam (-9.5%), Meyar (-7.5%) and NBM (-5.8%)

CORPORATE ACTIONS-

Aljazira Takaful Taawuni shareholder’s greenlit SAR 19.8 mn in dividends at SAR 0.3 per share for 2023, it said in a disclosure to Tadawul. Distributions will begin on Thursday, 10 October.