On December 14, 2024, Michael Foster from Forbes highlighted the potential impact of China's latest stimulus package on its stock market, which has seen a significant decline of nearly 50% since its peak in 2021. This new initiative is reminiscent of past U.S. quantitative easing measures and is expected to potentially lead to a 13% annualized gain for Chinese stocks [08e97195].
The stimulus package comes in the wake of China's 'bold capital' strategy, which aims to stimulate investments in high-risk, technology-focused projects, as reported by the South China Morning Post on December 13, 2024. Shenzhen's government plans to establish a trillion-yuan (approximately US$137.6 billion) cluster of government investment funds by 2026 to support over 10,000 private-equity and venture-capital funds [732e11a9].
Foster also pointed out that the China Fund (CHN) is currently trading at a 16.3% discount to its net asset value (NAV), indicating a potential opportunity for investors [08e97195]. However, historical context suggests that previous stimulus efforts in China have yielded limited long-term gains, raising questions about the effectiveness of such measures [08e97195].
In addition to the stimulus, the Institute of Finance and Banking has proposed a stabilization fund of 2 trillion yuan (about US$280 billion) to enhance capital market stability by actively buying and selling blue-chip stocks and exchange-traded funds (ETFs) [d72e43c9]. This proposal is part of a broader effort to counteract the sluggish growth reported in China's third-quarter GDP, which slowed to 4.6% [d72e43c9].
Foster advocates for diversifying investments with options like the BlackRock Enhanced International Dividend Trust (BGY), which offers a 9.2% yield and has outperformed Chinese benchmarks [08e97195]. He emphasizes the importance of strategic rebalancing between U.S. and international funds to maximize income and reduce volatility in the current economic climate.
As the People's Bank of China (PBOC) continues to explore supportive monetary policies, analysts remain cautiously optimistic about the proposed fund's ability to attract long-term investments and improve coordination between financial institutions and the central bank [d72e43c9]. However, volatility may persist in mainland China's stock exchanges, as evidenced by the fluctuations in the CSI 300 Index amid ongoing economic uncertainties [16636fdc].
Overall, the combination of the new stimulus package and the bold capital initiative could create a more favorable environment for investors, even as challenges remain in the Chinese market [b62128f5]. The global market's positive reaction, including record highs in U.S. markets, further underscores the interconnectedness of these economic developments [27c732d1].