(Bloomberg) — Chinese stocks are closing in on their first annual advance since the pandemic, and more gains could be in store if Beijing offers further growth support.
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The onshore benchmark CSI 300 Index has climbed almost 17% since end-2023 to halt an unprecedented three-year losing streak. A gauge of Chinese equities listed in Hong Kong jumped 27% to head for its biggest yearly increase since 2009. In comparison, the MSCI Asia Pacific Index has risen just 8% in 2024.
The positive milestones signal that things are finally looking up for China’s shares after years of underperformance versus their regional peers transformed some of their biggest fans into skeptics. Optimism is growing following a long-running cycle of starts and stops as Beijing unleashed one of its most daring policy campaigns in decades to resuscitate the economy.
“There is still a lot of room for China’s equity valuations to continue to improve in 2025, as the policies prescribed since the September pivot are both both clear-sighted and adequate,” said Zhao Zhonghua, chief investment manager at Shandong Camel Asset Management Co. “This will drive flows via state and household funds next year, even if implementation wise, there may be some discord or lag with market expectations.”
Investors allocated about $5.6 billion to Chinese equity funds in the week through Dec. 11, the biggest inflow in nine weeks, Bank of America Corp. strategists said, citing EPFR Global data. Domestic investors created 6.8 million accounts for trading onshore shares in October, the largest monthly reading since June 2015, according to a Bloomberg tally of data released by the Shanghai Stock Exchange. The number halved in November.
The turnaround has been a long time coming after Beijing’s previous piecemeal approach to boosting growth yielded only brief bouts of recovery in stocks. The CSI 300 Index has jumped 24% since late September when authorities rolled out a broad package of measures which included interest-rate cuts, bigger incentives to buy homes and monetary tools to support share purchases.
The gains crystallized as the Politburo vowed in December to embrace a “moderately loose” stance on monetary policies — its first such shift in 14 years — while pledging to ramp up fiscal measures for next year.
Nonetheless, there are still some signs of caution in the market.
Chinese investors’ appetite for stock-focused mutual funds waned in December as bonds once again gained attraction. While the total amount raised by equity products still exceeded that of fixed income investments, debt funds grew rapidly, notching their largest monthly figure for the year so far.
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To sustain the momentum in stocks, China still needs to address some of the deep-rooted issues that are foremost on investors’ minds, including the property downturn, weak consumer confidence and falling prices. All eyes are now on the annual National People’s Congress session in March, where Beijing will have another opportunity to convince investors with more detailed policies to shore up growth.
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