Chinese Equities Surge on Stimulus Measures: How to Capitalize on the Rally
Last week, Chinese equities saw their strongest performance since 2008, thanks to a series of stimulus measures introduced by the country's central bank and regulators. This surge in the benchmark index has investors wondering about the sustainability of the rally and how to make the most of it.
Gavekal Dragonomics believes that the extent of the rally will depend on whether policymakers can follow through on their promises of fiscal and monetary support. Historically, China's stock markets have experienced periods of rapid growth fueled by government stimulus, with gains ranging from 50-100%.
While the current rally is driven by expectations and central bank support, there is optimism that further stimulus measures will be implemented. The introduction of new mechanisms like swap facilities and refinancing options could provide additional support to the market.
Gavekal recommends shifting focus to onshore stocks, as they have outperformed offshore counterparts in previous rallies. Additionally, cyclical industries like industrials, materials, and consumer discretionary sectors tend to perform well during these periods.
Real estate developers could also benefit from a potential shift in housing policy, but the success of the rally will depend on the government's ability to address challenges such as weak labor markets and declining export growth.
In conclusion, investors should keep a close eye on policy developments in China and consider adjusting their investment strategy to take advantage of the current rally. By focusing on onshore stocks and sectors that have historically performed well during stimulus-driven rallies, investors can position themselves for potential gains in the Chinese equity market.