**China’s Stock Market Surge Raises Questions on Sustainability**
As the Hang Seng China Enterprises Index notches its strongest two-week performance in over 15 years, investors are wondering how much longer this remarkable rebound can last. The index has surged 36% since its low point last month, with many stocks more than doubling in value in just a few days. The catalyst for this rally was Beijing’s sweeping stimulus package announced on September 24, which has triggered a wave of buying and prompted strategists at firms like BlackRock to turn bullish on the previously struggling market.
However, some experts are now sounding cautionary notes. Rajiv Jain, manager of the top-performing GQG Partners Emerging Markets Equity Fund, believes the rally may be short-lived, while Nomura Holdings economists are warning of the risk of a bubble crash similar to 2015. The key to sustaining this momentum lies in whether Beijing will introduce further concrete measures to support the economy.
Investors are also eagerly awaiting data from the upcoming Golden Week holidays, which will provide insight into consumer spending patterns. Onshore markets are set to reopen on Tuesday, and many expect further fiscal stimulus announcements in the coming weeks, including measures aimed at boosting consumption.
Britney Lam, head of long-short equities at Magellan Investments Holding, predicts that global asset allocation shifts back to Chinese equities could be a significant tailwind for the market. The Hang Seng China Enterprises Index closed 3.1% higher on Friday, driven by hopes that holiday spending data will provide additional impetus for the market.
Leisure travel during the Golden Week holidays has shown resilience, with travel traffic gaining momentum, according to Citigroup analysts. E-commerce firms Meituan and Alibaba Group Holding Ltd. were among the top contributors to gains on the HSCEI gauge on Friday.
While optimism has dominated the market since the People’s Bank of China’s surprise interest rate cuts and reserve requirement ratio reductions, some are concerned that the gains may have come too quickly. The MSCI China Index, which was earlier heading for an unprecedented fourth straight annual loss, is now up over 34% for 2024. Iron ore prices, closely tied to the Chinese real estate market, have also soared in recent days.
However, skeptics argue that deep-seated economic issues, such as the prolonged property crisis and weak consumption, remain unsolved. The relative strength index for the Hang Seng China gauge has reached a record high, sparking concerns that the gains may have gone too far, too fast.
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