China boasts one of the world’s largest economies. However, the past decade and a half has not been kind to the markets. President Xi Jinping was determined to inject some life into the economy. His recent efforts of economic stimulus have brought about a stock buying frenzy that overwhelmed the markets.
China Stock Buying Frenzy
On Friday, the CSI 300 Index of large-cap shares rose by a whopping 4.5%. This brought the week’s gains to a total of 16%. Insiders told reporters that the trading was so frenzied at times the systems couldn’t keep up. Glitches and delays happened with all the trading activity. The Shanghai Exchange is investigating but would not comment further on those issues. This all started on Tuesday when the government of China doled out a massive stimulus package and vowed to fix the housing market.
The stocks may not be done rising either. David Chao, a strategist at Invesco Asset Management, is bullish on the amount of growth that could still happen.
“FOMO is running high for investors as Chinese equities have moved close to 10% in the past three days. Based on historical valuation, we think Chinese stocks have another 20% runway to go.”
Chao isn’t the only one who is interested in what is going on in China. Billionaire David Tepper revealed in an interview on CNBC that he is buying up as many stocks as possible in the country.
“I thought that what the Fed did last week would lead to China easing, and I didn’t know that they were going to bring out the big guns like they did. We got a little bit longer, more Chinese stocks.”
Questioning The Sustainability
This isn’t the first time the government of China has tried to fix the economy. Cynics of this surge point towards past efforts to stimulate the markets have fizzled. Those investors are looking more for fiscal stimulus. This will drive the next level of gains. Raymond Chen, a fund manager at ZiZhou Investment Asset Management, believes this will come, and anyone who does not get in on the growth now will be kicking themselves later. “We can expect fiscal measures as well to come. This is for sure leaving many cynics behind.”
Impact On The World Markets
China wasn’t the only country that saw gains this week. Because of the gains in Asia, both the European markets and United States markets saw growth. In Europe, the Stoxx 600 hit a fresh record high on Friday thanks to companies that benefit from spending in Asia. The S&P 500 closed Thursday with record highs for the third time this week. The United States is dealing with its own economic crisis, which has been a huge talking point for the upcoming election.
World leaders are starting to make fixing their country’s economies the priority. Not much else matters if the money is scarce. If China is able to sustain these numbers, it will do wonders to calm fears about the global economy. As with anything, it isn’t how one starts; it is how one finishes. While these gains are positive in the short term, investors will need to see long-term growth if fears about the economic prices are calmed. China is on holiday next week for Golden Week. Investors will watch for the rally to continue in Hong Kong as well as when the markets reopen after the holiday.
