The Chinese Government’s Bold Move to Revitalize the Economy
September saw the Chinese government take a significant step towards stabilizing its economy, which has been struggling to recover from the pandemic. With the real estate market teetering on the brink of collapse and persistent deflationary concerns, the Chinese government implemented a series of stimuli to boost growth.
Key Actions by the Chinese Government:
- The central bank and financial regulatory authorities in China announced on September 24, 2024, that they would reduce the benchmark lending rate by 20 basis points, cut the mortgage rates by 50 basis points, and lower banks’ capital requirements by 50 basis points.
- The minimum down payment requirement for second-hand homes was also reduced from 25 percent to 15 percent.
Challenges in the Chinese Real Estate Sector:
The Chinese real estate sector, a crucial driver of the country’s growth, has posed concerns in recent years. Financial instability in this sector has exerted pressure on the Chinese economy and dampened growth prospects.
Objectives of the Stimulus Measures:
By reducing mortgage rates and making property purchases more affordable, the government aims to increase disposable income for consumers, potentially boosting demand for goods and services. This aligns with China’s goal of fostering a sustainable growth model driven by domestic consumption rather than property and infrastructure investments.
Market Response:
The financial markets reacted swiftly to the stimuli. Chinese stock markets responded positively to the measures and the strong signals of economic support from the central bank.
The Shanghai Composite Index surged by 8.3 percent within 48 hours of the announcement, with a total increase of 22 percent by the end of the month. This led to a significant rise in Chinese equity funds.
Monthly Winners: Top Performing Chinese Equity Funds
The Chinese measures had an immediate impact on funds heavily focused on Chinese stocks. Some of the top performers for the month included JPM China A, with a gain of nearly 27 percent, followed closely by GAM Multistock China Evolution Equities at 26.4 percent and Robeco Chinese Equities at 25.8 percent.
These funds are benefiting from renewed optimism surrounding China’s economy and the potential for rapid recovery in the real estate sector and other growth areas like consumer markets and technology.
Defensive Funds: Monthly Losers
While Chinese equity funds saw significant gains in September, defensive funds in the healthcare sector faced headwinds.
DNB Biotechnology was the biggest loser with a decline of 7.2 percent, followed by C WorldWide Healthcare Select and Handelsbanken Healthcare Theme. Biotechnology funds such as SEB Biotechnology Fund C EUR and BNP Paribas Health Cr Innovtr Cl SEK Cap also experienced notable losses during the month, with declines of 6 percent.
Analysis:
The Chinese government’s actions to stimulate the economy have not only boosted investor confidence but also reshaped the investment landscape for the month. Chinese equity funds have emerged as top performers, benefiting from the positive market sentiment and growth prospects in key sectors.
On the other hand, defensive funds, particularly in the healthcare sector, faced challenges amid improving global economic conditions and heightened risk appetite for growth markets like China. The sensitivity of biotechnology funds to political and regulatory changes, coupled with ongoing debates on drug pricing and regulations, has contributed to the sector’s underperformance.